Question

When the Price of Doritos rose from $1.5 to $2.5 a bag, the Quantity supplied increases from 120,000 to 280,000 bags each month. Using the midpoint method, the Price Elasticity of Supply equals: (Answer to One Decimal place. No Sign cos PES)

This value is Elastic (E), Inelastic (I), or Unit Elastic (U):

Answer 1

Answer) The value is elastic

•Elasticity of Supply= { [ (Q2-Q1)/{ (Q2+Q1)/2 } ] / [ (P2-P1)/ { (P2+P1)/2 } ] }

Q2=280000

Q1=120000

P2= 2.5

P1= 1.5

Es= { [ 280000-120000)/ { (280000+120000)/2 } ] / [ ( 2.5-1.5)/ { (2.5+1.5)/2 } ]

Es= { [ 160000/200000 ] / [ 1/2] }

Es= 0.8/0.5

Es= 1.6

Since, es>1 the Supply is elastic i.e percentage change in quantity supplied is greater than percentage change in price.