Question

Consider two markets: the market for motorcycles and the market for pancakes. The initial equilibrium for both markets is the same, the equilibrium price is $2.50 , and the equilibrium quantity is 25.0 . When the price is $10.75 , the quantity supplied of motorcycles is 65.0 and the quantity supplied of pancakes is 105.0 . For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for pancakes. Please round to two decimal places.

Answer 1

Answer:

0.99

Explanation:

Elasticity is an economic metric that looks into the proportional change of an economic variable in response to a change in another. Therefore, elasticity of supply refers to the ratio of the proportionate change in the quantity supplied to the proportionate change in price. A higher value of elasticity implies supply sensitivity to price changes. The converse is also true.

Given,

Equilibrium price, $E_{p} = [tex]P_{1}$=2.50[/tex]

Equilibrium quantity, $E_{q} = [tex]Q_{1}$ =25.0[/tex]

At price 10.75= $P_{2}$

Quantity  supplied of pancakes, $Q_{2}$=105.0

Elasticity of supply of pancakes, $e_{p}$

= $\frac{percentage change in quantity supplied}{percentage change in price} =\frac{ Q2-Q1/(Q2+Q1/2)}{ P2-P1/(P2+P1/2)} =\frac{105-25/(105+25/2 }{10.75-2.50/(10.75+2.50/2) } \\=\frac{80/65 }{8.25/6.625 } = \frac{80}{65} *\frac{ 6.625}{8.25} \\=\frac{530}{536.25} \\\\= 0.99$

The elasticity of supply for pancake is 0.99