Question

your friend rita sells live bamboo trees. she's willing to supply 100 5-gallon buckets of bamboo trees for 80 dollars a bucket, and she's willing to supply 200 at that price. what is the mathematical value of rita's price elasticity of supply and how would you categorize her supply elasticity?

Answer 1

E_s = 0.9

It's inelastic

Step-by-step explanation:

Formula for elasticity of supply is;

E_s = % change in quantity supplied/% change in price

The percentage will cancel out so, we are left with;

E_s = change in quantity supplied/ change in price

Change in quantity supplied = (200 - 100)/((200 + 100)/2) = 3/5

Price for 100 buckets = 100 × 80 =$8000

Price for 200 buckets = 200 × 80 = $16000

Change in price = (16000 - 8000)/((8000 + 16000)/2) = 2/3

Thus:

E_s = (3/5) ÷ (2/3)

E_s = 0.9

Now, this price elasticity supply value is less than 1. Thus, it can be categorized as being inelastic.