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Chapter 5: Q.36 (page 131)

The equation for a supply curve is P = 3Q 鈥� 8. What is the elasticity in moving from a price of 4 to a price of 7?

Short Answer

Expert verified

The supply curve is inelastic at this point.

Step by step solution

01

Definition

Price Elasticity: Elasticity is a metric for calculating the percentage change in one variable as a result of a percentage change in another. The elasticity of demand is calculated by looking at how the price of goods changes over time.

02

Explanation

The supply curve is

P=3Q-8

At P=4, Q=4

At P=7, Q=5

The quantity offered increases as the price rises. Let's use the average formula to compute supply price elasticity.

% Change in quantity =Qfinal-Qinitialaveragequantity脳100%=5-44.5脳100%=22.2%

% Change in price =

Pfinal-Pinitialaverageprice脳100%=7-45.5脳100%=54.5%

Price elasticity of demand =%Changeinquantity%Changeinprice=22.2%54.5%=0.41

The elasticity of supply is 0.4thus inelastic.

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