Consider two markets. The initial equilibrium for both markets is the same, P =
ID: 1193573 • Letter: C
Question
Consider two markets. The initial equilibrium for both markets is the same, P = $0.50, and Q = 23.0. When the price is $7.75, the quantity supplied of motorcycles is 53.0 and the quantity supplied of pancakes is 103.00. The demand for both goods is the same (for simplicity of analysis). Use this information to answer the questions below: Using the midpoint formula, calculate the elasticity of supply for pancakes? Please round to two decimal places. Supply in the market for motorcycles is: the same elasticity as supply in the market for pancakes. less elastic than supply in the market for pancakes. There is not enough information to tell which will has a higher elasticity. more elastic than supply in the market for pancakes.Explanation / Answer
Elasticity of suply is measured as % change in supply to %change in price. Mid point elasticity:
% change in supply = (Q*-Q) / (Q+Q*)/2 = (103-23)/(103+23)/2 = 1.2698
% change in price=(P*-P)/(P*+P)/2= (7.75-0.5)/(7.75+0.5)/2 = 1.75
Where Q=initial quantity Q*=new quantity P*=new price P = initial price.
elasticity = 1.2698/1.75=0.722
This means the supply is inelastic since elasticty is lower than 1. The supply change in lower than price change.
Change in supply is still lower in motor cycle market. Therefore the elasticty of supply in motorcycle market is lower than pancake market.