Figure 5-2
-Refer to Figure 5-2.Using the midpoint method,what is the price elasticity of supply between $5 and $6?
A) 0.60
B) 0.64
C) 1.57
D) 1.67

Question

Figure 5-2 
-Refer to Figure 5-2.Using the midpoint method,what is the price elasticity of supply between $5 and $6?
A) 0.60 
B) 0.64 
C) 1.57 
D) 1.67

Quizplus · Accepted Answer

The midpoint method formula for price elasticity of supply is:

(price change / mid-price) / (quantity change / mid-quantity)

Using the values from the graph, we have:

(price change) = ($6 - $5) = $1
(mid-price) = ($6 + $5) / 2 = $5.50
(quantity change) = (250 - 150) = 100
(mid-quantity) = (250 + 150) / 2 = 200

Plugging these values into the formula, we get:

(price change / mid-price) = ($1 / $5.50) = 0.18
(quantity change / mid-quantity) = (100 / 200) = 0.50

(price change / mid-price) / (quantity change / mid-quantity) = 0.18 / 0.50 = 0.36

Taking the absolute value of the result, the price elasticity of supply is 0.36.

Since the price elasticity of supply is less than 1, the supply is considered inelastic. Therefore, an increase in price will not cause a proportionally larger increase in quantity supplied.

Looking at the answer choices, the only one that is less than 1 is C, 1.57. Therefore, the best choice is C.

Figure 5-2 -Refer to Figure 5-2.Using the Midpoint Method,what Is the Price