The average price of pineapples fell from $5 to $4, and the quantity supplied decreased from 1 million to 900,000 units. Using the base method, the price elasticity of supply is
A) 2.
B) 0.5.
C) -0.5.
D) 0.47.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the formula: [(Q2 - Q1) / (Q2 + Q1) / 2] / [(P2 - P1) / (P2 + P1) / 2]. Substituting the given values: [(900,000 - 1,000,000) / (900,000 + 1,000,000) / 2] / [($4 - $5) / ($4 + $5) / 2] = (-100,000 / 950,000) / (-1 / 4.5) = -0.105 / -0.222 ≈ 0.5.

The Average Price of Pineapples Fell from $5 to $4