Question

The table and graph below describe the supply of umbrellas per month in Peoria.

Supply of Umbrellas

Price (dollars)	Quantity of Umbrellas Supplied
$120	5,000
100	4,000
80	3,000
60	2,000
40	1,000
20	0

Instructions: Round your answers to two decimal places.

a. Using the midpoint method, what is the price elasticity of supply starting at a price of $40 per umbrella and moving to a price of $60 per umbrella?

       

b. Using the midpoint method, when the price of umbrellas falls from $100 per umbrella to $80 per umbrella, the decrease in price is a  % decrease.

     The decrease in quantity supplied is a  % decrease.

     Therefore, the elasticity of supply is  .

c. If the elasticity of supply for umbrellas is 1.1, then a decrease in the price of umbrellas of 20% will   (Click to select)   increase   decrease  the quantity supplied by  %.

Answer 1

Elasticity of demand using mid point method can be determined using the following formula

A. P1 = $ 40 and P2 = $ 60

Q1 = 1,000 and Q 2 = 1200

Elasticity = 0.45

B. P1 = $ 100 and P2 = $ 80

Q1 = 4000 and Q 2 = 3000

E = -1000 × 180 / 7000 ×(-20) = 1.2857

Elasticity of supply = 1.29

C.

If the elasticity of supply for umbrellas is 1.1, then a decrease in the price of umbrellas of 20% will decrease the quantity supplied by 22%.

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