In January the price of dark chocolate candy bars was $2.00,and Willy's Chocolate Factory produced 80 pounds.In February the price of dark chocolate candy bars was $2.50,and Willy's produced 110 pounds.In March the price of dark chocolate candy bars was $3.00,and Willy's produced 140 pounds.The price elasticity of supply of Willy's dark chocolate candy bars was about
A)0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.
B)0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.
C)1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
D)1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

Question

Quizplus · Accepted Answer

To calculate the price elasticity of supply we use the formula:
% change in quantity supplied / % change in price

When the price increased from $2.00 to $2.50, the percentage change in price is (2.50-2.00)/2.00 = 0.25 or 25%, and the percentage change in quantity supplied is (110-80)/80 = 0.375 or 37.5%. Therefore, the price elasticity of supply is 0.375/0.25 = 1.5.

When the price increased from $2.50 to $3.00, the percentage change in price is (3.00-2.50)/2.50 = 0.20 or 20%, and the percentage change in quantity supplied is (140-110)/110 = 0.2727 or 27.27%. Therefore, the price elasticity of supply is 0.2727/0.20 = 1.36.

The average of these two elasticity values is (1.5+1.36)/2 = 1.42, which is closest to answer choice (C).

In January the Price of Dark Chocolate Candy Bars Was