Question

An increase in the demand for green tea raises the price of apples from $16 a pound to $20 a pound. as a result, quantity supplied increases by 30 percent. using the midpoint formula, calculate the value of the price elasticity of supply

Answer 1

To get the price elasticity of supply for green tea, we must divide the percentage change in quantity supply by the percentage change in price.

In this question, the percentage in quantity supply has already been supplied which is 30%. Now, we only need to get the percentage change in the price.

[(New Price - Old Price) / Old Price
( 20 - 16 ) / 16 --> 4 / 16 = .25 or 25%

To get PES, divide 30% by 25%.
We get that green tea's price elasticity of supply when price increases from $16 to $20 is 1.2.