An increase in the demand for green tea raises the price of green tea from $16...
An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound. As a result, quantity supplied increases by 30 percent. Using the midpoint formula, what is the value of the price elasticity of supply?
Homework Answers
Given p1=$16;p2=$20
%change in quantity supply=30%
By using the mid point formula
Price elasticity of supply=%change in quantity supply/%change in price
%change in price=(p2-p1÷p2+p1/2)×100
=($20-$16÷$20+$16/2)×100
=(4/18)×100=22.22%
Price elasticity of supply=30%/22.22%=1.35
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