Answered: Consider two markets: the market for…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter20: Elasticity: Demand And Supply

Section: Chapter Questions

Problem 13E: Using the following equation for the demand for a good or service, calculate the price elasticity of...

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Question

Consider two markets: the market for coffee and the market for hot cocoa. The initial equilibrium for both markets is the same, the equilibrium price is $4.50, and the equilibrium quantity is 35.0. When the price is $11.75, the quantity supplied of coffee is 59.0 and the quantity supplied of hot cocoa is 103.0. For simplicity of analysis, the demand for both goods is the same.

Using the midpoint formula, calculate the elasticity of supply for hot cocoa.

Expert Solution

Step 1

Through the midpoint, we can calculate the elasticity of supply.

The formula for the elasticity of supply:

Es = {(Q2-Q1)/[(Q2+Q2)/2]} / {(P2-P1)/[(P2+P2)/2]}

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