Chapter 9R, Problem 13MCQ

To determine

The price elasticity of supply between points J and E by using the midpoint method.

Explanation of Solution

By using the midpoint method, the price elasticity of supply between points J and E would be:

  $\begin{array}{c}\text{Price elasticity of Supply = }\frac{\left(\text{S2 }-\text{ S1}\right)\text{ / }\left[\left(\text{S2 + S1}\right)\text{ / 2}\right]}{\left(\text{P2 - P1}\right)\text{ / }\left[\left(\text{P2 + P1}\right)\text{ / 2}\right]}\\ \text{= }\frac{\left(\text{25 - 12}\text{.5}\right)\text{ / }\left[\left(\text{25+12}\text{.5}\right)\text{ / 2}\right]}{\left(\text{0 - 50}\right)\text{ / }\left[\left(\text{0 + 50}\right)\text{ / 2}\right]}\\ \text{= }\frac{\text{12}\text{.5 /18}\text{.75}}{\left(50/25\right)}\\ \text{= }\frac{\text{0}\text{.66}}{\left(\text{2}\right)}\\ \text{= 0}\text{.33}\end{array}$

It is less than 1 and economists would classify it as inelastic.

Therefore, the correct option is e (0.33, inelastic).

Economics Concept Introduction

Introduction:

Elasticity of supply represents the measure of sensitivity of supply to price that shows how change in price or supply of goods affects the quantity demanded.

Midpoint method is used to calculate elasticity by using the average percentage change in quantity and average percentage change in price.