The table and graph below describe the supply of umbrellas per month in Peoria.
ID: 1221263 • Letter: T
Question
The table and graph below describe the supply of umbrellas per month in Peoria.
A. Using the midpoint method, what is the price elasticity of supply starting at a price of $40 per umbrella and moving to a price of $60 per umbrella?
B. Using the midpoint method, when the price of umbrellas falls from $100 per umbrella to $80 per umbrella, the decrease in price is a _______% decrease. The decrease in quantity supplied is a _______% decrease. Therefore, the elasticity of supply is _________.
C. If the elasticity of supply for umbrellas is 1.1, then a decrease in the price of umbrellas of 20% will _________ the quantity supplied by _________%
Supply of Umbrellas Quantity of Umbrellas Supplied 5,000 4,000 3,000 2,000 1,000 Price (dollars $120 100 80 60 40 20 Supply of Umbrellas 140 120 100 80 60 40 1000 2000 3000 4000 5000 6000 Quantity (umbrellas)Explanation / Answer
Req a: Change in price: 60-40 =20 Average Price: 60+40 /2 = 50 % Change in price: 20/50 = 40% % Change in Supply: 2000-1000 = 1000 Average Supply: 2000+1000 /2 = 2500 % Change in Supply: 1000/2500 = 40% Price elasticity of supply: % change in Supply/ % change in Price 40% / 40% = 1 Req b: Change in Ssupply: 3000-4000 = -1000 Average Supply: 3000+4000 /2 = 3500 % Change in Supply: -1000 /3500 *100 = -28.57% Change in Price: 80-100 = -20 Average price: 80+100 /2 = 90 % Change in price: -20 /90 *100 = -22.22% Price elasticity of supply: % change in Supply/ % change in Price (-28.57% / -22.22%) = 1.29 The decrease in price is 22.22% Tth decrease in supply is 28.57% Price elasticity of supply is 1.29 Req c: Price elasticity of supply: 1.1 Decrease in price: 20% Decrease in Supply = 22% ( i.e. 1.1*20%)
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