Question

Suppose the price of apples goes up from $22 to $24 a box. In direct response, Goldsboro Farms supplies 1300 boxes of apples instead of 1000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboroâs supply.
Instructions: Round your answer to two decimal places.

Es = ____________

Is its supply elastic, or is it inelastic?

Supply is ________

Answer 1

Answer:

Elasticity of supply=3.3>1, there for the supply is elastic

Explanation:

Elasticity of supply can be defined as a ratio that can be used to test the sensitivity of supply due to a change in price.

The formula can be expressed as;

Elasticity of supply=Percentage change in quantity supplied/Percentage change in price

where;

Percentage change in quantity supplied=((Final quantity supplied-Initial quantity supply)/(Initial quantity supplied))×100

Final quantity supplied=1,300 boxes

Initial quantity supplied=1,000 boxes

Percentage change in quantity supplied=(1,300-1,000)/1,000=300/1,000

Percentage change in quantity supplied=(0.3×100)=30%

Percentage change in price=((Final price-Initial price)/(Initial price))×100

Final price=$24

Initial price=$22

Percentage change in price=(24-22)/22=2/22

Percentage change in price=(1/11)×100=9.1%

With all the values calculated, the elasticity of supply can be calculated as follows;

Elasticity of supply=30%/9.1%=3.3

Elasticity of supply=3.3>1, there for the supply is elastic