Answer to Question #107568 in Microeconomics for sawaiz

Question

when the price of a jar of jelly decreased from $4 to $2, suppliers of jelly decreased production from 250,000 jars to 150,000 jars. What is the price elasticity of supply in this case? What is the interpretation of the estimated elasticity?

Answer 1

We can calculate elasticity with next formula: 

Es= $((Q2-Q1)/(Midpoint Q))/((P2-P1)/(Midpoint P))$

So, Es=((150,000-250,000)/(400,000))/((2-4)/(6)) = 0.75

As supply elasticity is less than 1, it means that supply is not price elastic. 1% change in price will lead to 0.75% change in supply.