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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

The equation for a supply curve is Chapter 5, Problem 35P, The equation for a supply curve is What is the elasticity of supply as price rises from 3 to 4? What What is the elasticity of supply as price rises from 3 to 4? What is the elasticity of supply as the price rises from 7 to 8? Would you expect these answers to be the same?

To determine

Calculate the elasticity of supply for given supply function when price rises from 3 to 4 and 7 to 8. Also, mention would we expect the same answer in both cases.

4P = Q.

Explanation

We will first find the quantity supplied at price $3

4P = Q4×3= Q Q = 12Q = 12 units at P = $3

Now, we will find quantity supplied at price $4

4P = Q4×4 = QQ =16Q = 16 units at P = $4

Now, we can calculate the elasticity of supply with the following formula:

e = ΔQΔP×PQ

e = 161243×312e = 41×14e = 1 

Therefore, the elasticity of supply is 1 when price rises from $3 to $4.

Now we will calculate the elasticity of supply when price rises from $7 to $8

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