Question

Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply.
A. In the short run, a price increase from $1 to $2 is unit elastic (Es = 1.0). So how many popsicles will be sold each day in the short run if the price rises to $2 each?
B. In the long run, a price increase from $1 to $2 has an elasticity of supply of 1.50. So how many popsicles will be sold per day in the long run if the price rises to $2 each?

Answer 1

Answer:

(A.) In the short run if the price rises to $2 each,

change in price = 2-1

= 1

% change in price = (1/1)*100

=100%

% change in quantity /% change in price = Es

% change in quantity /100 = 1

% change in quantity = 1*100

= 100%

It means supply will increase by 100% .

So new total supply will be = 100 + 100* 1

= 100 +100

=200 units.

In the short term, the new supply will be 200 units.

(B.)

In the long run if the price rises to $2 each

change in price = 2-1

= 21

% change in price = (1/1)*100

=100%

% change in quantity /% change in price = Es

% change in quantity /100 = 1.5

% change in quantity = 1.5*100

= 150%

It means supply will increase by 150% .

So new total supply will be = 100+100* 1.5

= 100+150

=250units.

The long-term new supply will be 250 units per day.

Explanation: