The table and graph below describe the supply of umbrellas per month in Peoria.

Question

The table and graph below describe the supply of umbrellas per month in Peoria. Supply of Umbrellas Price (dollars) Quantity of Umbrellas Supplied $120 5,000 100 4,000 80 3,000 60 2,000 40 1,000 20 0 Instructions: For all numeric response options, round your answer to 2 decimal places. 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? 1.66 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 22.22 % decrease. The decrease in quantity supplied is a 28.57 % decrease. Therefore, the elasticity of supply is 1.28 . 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 _ ?

Explanation / Answer

a) PES = (2000 - 1000) / (60 - 40) * (40 + 60) / (1000 + 2000)

= (1000 / 20) * (100 / 3000)

= 100000 / 60000

= 1.66

b) when the price of umbrellas falls from $100 per umbrella to $80 per umbrella, the decrease in price is a 20% decrease. The decrease in quantity supplied is a 25% decrease. Therefore, the elasticity of supply is 1.25

Explanation:

% decrease in price = (20 / 100) * 100 = 20%

% decrease in quantity supplied = (1000 / 4000) * 100 = 25%

ES = 25% / 20% = 1.25

c) Ans: 22%

Explanation:

PES = % change in quantity supplied / % change in price

1.1 = % change in quantity supplied / 20%

% change in quantity supplied = 1.1 * 20% = 22%

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