Question

Suppose the price of apples rises from $20 t the price of apples rises from $20 to $22 per box and quantities increased from to 1200 boxes. Calculate the price elasticity of supply using the mid-point formula. When the price of Ford pickup trucks rises from $18,000 to $19,000, the quantity of Chevy trucks demanded increases from 112,000 to 144,000. Using the midpoint method, what is the cross elasticity of demand between Ford and Chevy trucks?

Answer 1

Ans) 1) Price elasticity of supply is the responsiveness of quantity supplied to change in price. If elasticity is more than 1, good is elastic and if it is less than 1, good is inelastic.

① Mid-point formula 7 Elasticity='CQ-Q1] . Pa- P.) (Q2tQ,) 12 (PatP5/2 = (1200-1000) (22-20) C1200 +1000)/2 = (22+20)/2 - hot = 1,91 CElastic Supply) 1100

2) Cross price elasticity of demand is the responsiveness of quantity demanded to change in price. If cross price elasticelasis positive, goods are substitutes and if it is negative, goods are complementary.

dh @ Mid-point formular Elasticity = -Q.) : (Pa- P2 Q+Q1/2 Pa+) of Chevy of Ford = 6144,000 – 112,000) , C$19,00 – $18,000) (194,000 +12,000)/2 = 19,00 +18,000)/2 - 32000 i 10 120,000 = 4,6 Csubstitutes)