Question

What is the formula for measuring the price elasticity of supply? Percentage change in quantity demanded/percentage change in income Percentage change in quantity supplied/percentage change in income Percentage change in quantity supplied/percentage change in price Percentage change in quantity demanded/percentage change in price b. Suppose the price of apples goes up from $23 to $24 a box. In direct response, Goldsboro Farms supplies 1,400 boxes of apples instead of 1,000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro’s supply.c) Is it supplies elastic, or is it inelastic?

Answer 1

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