Multiple Choice
Which of the following best describes the influence of high prices on the behavior of producers with respect to price elasticity of supply?
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4. Elasticity
Price Elasticity of Supply
Multiple Choice
Given that the price elasticity of supply for oranges is 1.5 and 1,000 oranges are supplied per week at \$1.50 per orange, how many oranges will be supplied per week at \$2.00 per orange?
A
1,250 oranges
B
2,000 oranges
C
1,500 oranges
D
1,200 oranges
Verified step by step guidance1
Identify the given variables: the price elasticity of supply (E_s) is 1.5, the initial price (P_0) is \$1.50, the new price (P_1) is \$2.00, and the initial quantity supplied (Q_0) is 1,000 oranges.
Recall the formula for price elasticity of supply:
\[ E_s = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}} \]
Calculate the percentage change in price using the formula:
\[ \% \text{ change in price} = \frac{P_1 - P_0}{P_0} = \frac{2.00 - 1.50}{1.50} \]
Use the elasticity formula to find the percentage change in quantity supplied:
\[ \% \text{ change in quantity supplied} = E_s \times \% \text{ change in price} \]
Calculate the new quantity supplied (Q_1) by applying the percentage change to the initial quantity:
\[ Q_1 = Q_0 \times (1 + \% \text{ change in quantity supplied}) \]
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