A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t- shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the price elasticity of supply for t- shirts is about
A) 0.37, and supply is elastic.
B) 0.37, and supply is inelastic.
C) 2.71, and supply is elastic.
D) 2.71, and supply is inelastid.

Question

Quizplus · Accepted Answer

Using the midpoint method, we can calculate the price elasticity of supply as follows:

% change in quantity supplied = (100-75)/((100+75)/2) = 0.25
% change in price = (20-18)/((20+18)/2) = 0.105

Price elasticity of supply = % change in quantity supplied / % change in price
= 0.25 / 0.105
= 2.38 (rounded to two decimal places)

The elasticity value of 2.71 indicates that supply is elastic, meaning that a small change in price leads to a relatively larger change in the quantity supplied.

A T-Shirt Maker Would Be Willing to Supply 75 T-Shirts