Question

Consider two markets: the market for motorcycles and the market for pancakes. The initial equilibrium for both markets is the same, the equilibrium price is $2.50 , and the equilibrium quantity is 25.0 . When the price is $10.75 , the quantity supplied of motorcycles is 65.0 and the quantity supplied of pancakes is 105.0 . For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for pancakes. Please round to two decimal places.

Answer 1

0.99

Step-by-step explanation:

Elasticity is an economic metric that looks into the proportional change of an economic variable in response to a change in another. Therefore, elasticity of supply refers to the ratio of the proportionate change in the quantity supplied to the proportionate change in price. A higher value of elasticity implies supply sensitivity to price changes. The converse is also true.

Given,

Equilibrium price,
`E_(p) = [tex]P_(1)`=2.50[/tex]

Equilibrium quantity,
`E_(q) = [tex]Q_(1)` =25.0[/tex]

At price 10.75=
`P_(2)`

Quantity supplied of pancakes,
`Q_(2)`=105.0

Elasticity of supply of pancakes,
`e_(p)`

=
`(percentage change in quantity supplied)/(percentage change in price) =( Q2-Q1/(Q2+Q1/2))/( P2-P1/(P2+P1/2)) =(105-25/(105+25/2 )/(10.75-2.50/(10.75+2.50/2) )  \\=(80/65  )/(8.25/6.625 )  = (80)/(65) *( 6.625)/(8.25) \\=(530)/(536.25) \\\\= <strong>0.99</strong>`

The elasticity of supply for pancake is 0.99