Question

5). Calculate the numerical value of the price elasticity of supply I each of the following situation using midpoint method A rise in the price of wheat from $300 to $350 per metric tonne increases the amount supplied by wheat farmers from 8 million to 9 million tonnes. The amount of farmed salmon sold drops from 2 million to 1 million kilograms when the price of salmon falls from $8 to $ 7.50. When the price of oranges rises from 2 million to 3 million per kilogram, the annual amount supplied rises from 2 million to 4 million kilograms.

Answer 1

Question 5

(a)

A rise in the price of wheat from $300 to $350 metric tonne increase the amount supplied by wheat farmers from 8 million to 9 million tonnes.

So,

P1 = $300

Q1 = 8 million

P2 = $350

Q2 = 9 million

Calculate the price elasticity of supply (using mid-point method) -

Thus,

The price elasticity of supply is 0.76

(b)

A fall in the price of salmon from $8 per kg to $7.50 per kg decreases the amount supplied by salmon farmers from 2 million to 1 million kilograms.

So,

P1 = $8

Q1 = 2 million

P2 = $7.50

Q2 = 1 million

Calculate the price elasticity of supply (using mid-point method) -

Thus,

The price elasticity of supply is 10.33

(c)

A rise in the price of oranges from $2 to $3 per kilogram increase the amount supplied by orange farmers from 2 million to 4 million kilograms.

So,

P1 = $2

Q1 = 2 million

P2 = $3

Q2 = 4 million

Calculate the price elasticity of supply (using mid-point method) -

Thus,

The price elasticity of supply is 1.67