Answer:
Price elasticity of supply is 1.89
Explanation:
Using the midpoint method, the price elasticity of supply between two points is given by the formula:
Price elasticity of supply = [tex]\frac{(Q_{2}-Q_{1})/(Q_{2}+Q_{1})/2 }{(P_{2}-P_{1})/(P_{2}+P_{1})/2}[/tex]
Where:
Q₂ is the quantity supplied at point 2
Q₁ is the quantity supplied at point
P₂ is the price at point 2
P₁ is the price at point 1
Given:
Q₂ = 250; Q₁ = 200
P₂ = $4.50; P₁ = $4.0
Price elasticity of supply = [tex]\frac{(Q_{2}-Q_{1})/(Q_{2}+Q_{1})/2 }{(P_{2}-P_{1})/(P_{2}+P_{1})/2}[/tex]
Substituting values we get
Price elasticity of supply = [tex]\frac{(250-200)/(250+200)/2 }{(4.5-4.0)/(4.5+4.0)/2}[/tex]
Price elasticity of supply = [tex]\frac{50/450/2 }{0.5/8.5/2}[/tex]
Price elasticity of supply = [tex]\frac{50/225 }{0.5/4.25}[/tex]
Price elasticity of supply = [tex]\frac{0.2222 }{0.1176}[/tex]
Price elasticity of supply = 1.89
Since Price elasticity of supply = 1.89 > 1, the supply is elastic
