Answer to Question #107568 in Microeconomics for sawaiz

Question #107568
when the price of a jar of jelly decreased from $4 to $2, suppliers of jelly decreased production from 250,000 jars to 150,000 jars. What is the price elasticity of supply in this case? What is the interpretation of the estimated elasticity?
1
Expert's answer
2020-04-03T09:46:36-0400

We can calculate elasticity with next formula: 

Es= "((Q2-Q1)\/(Midpoint Q))\/((P2-P1)\/(Midpoint P))"

So, Es=((150,000-250,000)/(400,000))/((2-4)/(6)) = 0.75

As supply elasticity is less than 1, it means that supply is not price elastic. 1% change in price will lead to 0.75% change in supply.


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