Question

Assume the markets for cherries, muffins and tea are each perfectly competitive. (a) In the market for cherries, the equilibrium price is $1 per kilogram and the equilibrium quantity is 1000 kilograms. Calculate the price elasticity of supply if price increases to $1.20 causing the quantity supplied to increase to 1500 kilograms. 

Answer 1

% change in quantity supplied:

$=\frac{1500-1000}{1000}\times100=50$%

% change in price:

$=\frac{1.20-1}{1}\times100=20$%

Price Elasticity of Supply:

$=\frac { Percentage Change in Quantity Supplied}{ Percentage Change in Price}$

$=\frac{50}{20}$

$=2.5.$