When the price of paper increases from $250
to $256
per ton, the quantity supplied increases from 250
to 270
tons per day. The price elasticity of supply is nothing
.
(Enter your response rounded to two decimal places.)
Price Elasticity of Demand. The first law of demand states that as price increases, less quantity is demanded. This is why the demand curve slopes down to the right. Because price and quantity move in opposite directions on the demand curve, the price elasticity of demand is always negative.
To calculate the price elasticity of supply, you can use the formula:
Elasticity of Supply = (percentage change in quantity supplied) / (percentage change in price)
First, let's calculate the percentage change in quantity supplied:
Percentage change in quantity supplied = ((new quantity supplied - old quantity supplied) / old quantity supplied) * 100
In this case, the old quantity supplied is 250 tons, and the new quantity supplied is 270 tons. Using these values, we can calculate:
Percentage change in quantity supplied = ((270 - 250) / 250) * 100
Percentage change in quantity supplied = (20 / 250) * 100
Percentage change in quantity supplied = 8%
Next, let's calculate the percentage change in price:
Percentage change in price = ((new price - old price) / old price) * 100
Here, the old price is $250 per ton, and the new price is $256 per ton. Calculating the percentage change in price:
Percentage change in price = ((256 - 250) / 250) * 100
Percentage change in price = (6 / 250) * 100
Percentage change in price = 2.4%
Now we have both the percentage change in quantity supplied (8%) and the percentage change in price (2.4%).
Plugging these values into the price elasticity of supply formula:
Elasticity of Supply = (8% / 2.4%)
Calculating:
Elasticity of Supply = 3.33
Hence, the price elasticity of supply is 3.33, rounded to two decimal places.