Explanation:
The computation of the price elasticity of supply using mid point approach is shown below:
a. The formula is shown below:
Price elasticity of supply = (Percentage change in quantity supplied ÷ percentage change in price)
b. The computation is shown below:
= ( Change in quantity supplied ÷ average of quantity supplied) ÷ (percentage change in price ÷ average of price)
where,
Change in quantity supplied would be
= Q2 - Q1
= 1,400 - 1,000
= 400
And, average of quantity supplied would be
= (1,400+ 1,000) ÷ 2
= 1,200
Change in price would be
= P2 - P1
= $24 - $23
= $1
And, average of price would be
= ($24 + $23)÷ 2
= $23.5
So, after solving this, the price elasticity of supply is 7.84 that reflects the supplies is elastic
