Question

g At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

Answer 1

Answer:

The price elasticity of supply is about 0.87.

Explanation:

The price elasticity of supply is the degree of responsiveness of quantity supplied to the change in price.

The midpoint method of calculating the price elasticity of supply uses the average percentage change in both quantity and price, and this is given as follows:

Price elasticity of supply = Percentage change in supplied / Percentage change in price

We therefore apply this as follows:

Percentage change in quantity supplied = {(New supply - Old supply) / [(New supply + Old supply) / 2]} * 100 = {(170 - 150) / [(170 + 150) / 2]} * 100 = 12.50%

Percentage change in price = {(New price - Old price) / [(New price + Old price) / 2]} * 100 = {(1.50 - 1.3) / [(1.50 + 1.30) / 2]} * 100 = 14.29%

Therefore, we have:

Price elasticity of supply = Percentage change in supplied / Percentage change in price = 12.50% / 14.29% = 0.87

Therefore, the price elasticity of supply is about 0.87.

Note that since the price elasticity of demand of about 0.87 is less than 1, it implies that the relationship between the quantity demanded and the price is inelastic.