Question

Suppose that an increase in the price of melons from $0.50 to $1.50 per pound increases the quantity of melons that melon farmers produce from 2 million pounds to 4 million pounds. The price elasticity of supply in this case indicates that supply is Group of answer choices

Answer 1

Answer: elastic

Explanation:

The price elasticity of supply will be:

The percentage change in price will be:

= (1.50 - 0.50)/0.50 x 100

= 1.00/0.50 × 100

= 200

The percentage change in quantity will be:

= (4 -2)/2 x 100

= 2/2 × 100

= 100

Elasticity = % change in quantity/% Change in Price = 200/100 = 2

Since elasticity = 2, this indicates supply is elastic as it's greater than 1.