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Using the Midpoint Formula of Price Elasticity of Supply

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Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $1 to $2 is unit-elastic (Es=1.0). So how many popsicles will be sold each day in the short run if the price rises to $2 each? In the long run, if the price rises to $2 each? (Hint: Apply the midpoint approach to the elasticity of supply).

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The midpoint formula for elasticity of supply is:

Es = ((P1+P2)/(Q1+Q2))*((Q2-Q1)/(P2-P1)

In the short run:

1 = ...

Solution Summary

This solution gives detailed calculations showing how to apply the midpoint formula of price elasticity of supply to predit the number of popsicles sold in the perpetually hot town of Rostin.

See Also This Related BrainMass Solution

Definition of some economics terms, using the midpoint formula to calculate the Price Elsticity of Demand

The questions are in the attachment files 1 and 2.

Question 1

Define or explain the following economic terms:

a) Quantity demanded
b) Quantity supplied
c) Market equilibrium
d) Consumer surplus
e) Price elasticity of demand

Question 2

By using the midpoint formula, calculate the price elasticity for each of the following changes in demand by a household.
Demand for P1 P2 Q1 Q2

(a) Long-distance phone service $0.25 per min. $0.15 per min. 300 min. 400 min.
per month per month

(b) Orange juice 1.50 per qt. 1.90 per qt. 14 qt 12 qt
per month per month

Question 3

Do you agree or disagree with each of the following statements? Briefly explain your answers.

(a) The price of a good rises, causing the demand for another good to fall. The two goods are therefore substitutes.
(b) If demand increases and supply increases at the same time, price will clearly rise.
(c) A shift in supply causes the price of a good to fall. The shift must have been an increase in supply.

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