Suppose that an increase in the price of rare cockatoos from $1000 to $1600 prompts breeders to increase the supply of these birds on the market from 600 to 1000. Using the midpoint method, what would be the elasticity of supply?
A) 0.50
B) 0.92
C) 1.00
D) 1.08

Question

Quizplus · Accepted Answer

The midpoint method formula for elasticity of supply is:
(midpoint% change in quantity supplied) / (midpoint% change in price)

% change in quantity supplied = ((new quantity - old quantity) / midpoint quantity) x 100
% change in price = ((new price - old price) / midpoint price) x 100

Using the numbers provided:
Midpoint quantity = (600+1000)/2 = 800
% change in quantity supplied = ((1000-600)/800) x 100 = 50%
Midpoint price = (1000+1600)/2 = 1300
% change in price = ((1600-1000)/1300) x 100 = 46.15%

Plugging in the values into the formula:
Elasticity of supply = (50%/46.15%) = 1.08

Therefore, the elasticity of supply is 1.08.

Suppose That an Increase in the Price of Rare Cockatoos