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Chapter 6: Problem 1

Write the formula for the price elasticity of supply. If an increase of 10 percent in the price of frozen pizzas results in a 9 percent increase in the quantity of frozen pizzas supplied, what is the price elasticity of supply for frozen pizzas? Is the supply of pizzas elastic or inelastic?

Short Answer

Expert verified
The price elasticity of supply for frozen pizzas is 0.9. The supply for frozen pizzas is inelastic as the calculated elasticity is less than 1.

Step by step solution

01

Understanding Price Elasticity of Supply Formula

The formula for price elasticity of supply (Es) is given by: \(Es = \frac{\% \Delta Q_s}{\% \Delta P}\) where: \n- %ΔP is the percentage change in price \n- %ΔQs is the percentage change in quantity supplied.
02

Substituting the Given Values into the Formula

Given that there is a 10 percent increase in the price of pizzas (\%ΔP = 10%) and 9 percent increase in the quantity of pizzas supplied (\%ΔQs = 9%), the formula becomes: \(Es = \frac{9}{10}\)
03

Calculate the Price Elasticity of Supply

Solving the equation gives the price elasticity of supply for the frozen pizzas. \(Es = 0.9\)
04

Determining the Nature of Price Elasticity of Supply

To determine whether the supply is elastic or inelastic, one needs to compare the calculated elasticity with 1. If Es > 1, the supply is elastic. If Es < 1, the supply is inelastic. Since the calculated Es is less than 1, the supply for frozen pizzas is inelastic.

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Most popular questions from this chapter

Amazon allows authors who self-publish their e-books to set the prices they charge. One author was quoted as saying, "I am able to drop prices and, by sheer volume of sales, increase my income." Was the demand for her books price elastic or price inelastic? Briefly explain.

Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic: a. Milk b. Frozen cheese pizza c. Gasoline d. Prescription medicine

According to a news story about the bus system in the Lehigh Valley in Pennsylvania, "Ridership fell 14 percent ... after a 33 percent increase" in bus fares. Based on this information, is the demand for bus trips price elastic or price inelastic? Explain your answer in terms of the five determinants of price elasticity.

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What is the midpoint formula for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of using the midpoint formula?
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