The quantity supplied of bagels is 100 at the unit price $1. Suppose the price elasticity of supply by the initial value method is 1.5, and you would like to induce sellers to increase the quantity of bagels supplied to 130. Then the new price for bagels must be
A) $11.
B) $10.20.
C) $1.20.
D) $1.10.

Question

Quizplus · Accepted Answer

Using the initial value method, we can find the percentage change in quantity supplied as follows:

%ΔQs = 1.5 x (%ΔP)

Since we want to increase quantity supplied from 100 to 130, we can calculate the percentage change in quantity as follows:

%ΔQs = ((130-100)/100) x 100% = 30%

Substituting this into the elasticity formula, we can solve for the percentage change in price that would induce this increase in quantity supplied:

30% = 1.5 x (%ΔP)

%ΔP = 20%

Since the initial price was $1, a 20% increase in price would give us:

$1.20

Therefore, the new price for bagels must be $1.20 to induce sellers to increase the quantity supplied to 130. Choice C) is the correct answer.

The Quantity Supplied of Bagels Is 100 at the Unit