Question

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is:
1.66.
0.66.
0.60.
1.50.

Answer 1

Answer:

0.60

Explanation:

The midpoint formula is used to calculate elasticity by using average percentage in both price and quantity.

The formula is given below:

Percentage change in quantity =  (Q2 -Q1)       x  100

                                                        (Q2 + Q1) / 2

Percentage change in price = (P2 -P1)       x  100

                                                   (P2 + P1) / 2

Elasticity = Percentage change in price__

                 Percentage change in quantity

Inserting the data:

Percentage change in quantity = (30  -20)      x  100  =    10 x 100  = 40%

                                                       (30 + 20) /2                   25

Percentage change in price  = ($20 - $10) x 100    =  10  x 100   =  66.6%

                                                    ($20 + $10) /2             15

Elasticity of supply = 40%

                                  66.6%

                                  = 0.60