Question

5. Using the supply data in the schedule shown below, complete the table by computing the price elasticity of supply coefficients between each set of prices. Indicate whether supply is elastic, inelastic or unitary at each set of prices.


Quantity Elasticity Character

Price supplied coefficient of supply

$11 130 _________ _________

9 110 _________ _________

7 90 _________ _________

5 70 _________ _________

3 50 _________ _________

Answer 1

Elasticity of supply schedule

Computation

The elasticity in supply is computed as follows:

E_s = $ΔQ/Q/Δ P/P$

The change in price and change in quantity supplied is given by:

Elasticity = (Q₂ – Q₁)/Q / (P₂ - P₁)/P

Explanation

A 18%, 22%, 29% and 40% decrease in price leads to a respective decrease in the quantity supplied by 15%, 18%, 22% and 29%. This results to an elasticity coefficient of 0.85, 0.82 0.78 and 0.71 respectively. Since the elasticity of supply is less than 1, it is hence inelastic. The implication is that the supply is price inelastic implying that that sellers respond weakly to price changes.