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Question
Microeconomics
Posted 2 months ago

When the price of socks was $4\$ 4 per pair, Theo's Sock-Stravaganza supplied 10,000 pairs of socks. When the price of socks was $5\$ 5 per pair, it supplied 17,500 pairs of socks.

What is the price elasticity of supply for socks?

Choose 1 answer:
(A) 2.4
(B) 0.33
(C) 3
(D) 7
(E) 1.5
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Answer from Sia
Posted 2 months ago
Solution
a
Definition of Price Elasticity of Supply: The price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good to a change in its price. It is calculated using the formula: PES=%ΔQs%ΔPPES = \frac{\% \Delta Q_s}{\% \Delta P}
b
Calculate Percentage Change in Quantity Supplied: The initial quantity supplied (Q1Q_1) is 10,000 pairs, and the new quantity supplied (Q2Q_2) is 17,500 pairs. The percentage change in quantity supplied is calculated as: %ΔQs=Q2Q1Q1×100=17,50010,00010,000×100=75%\% \Delta Q_s = \frac{Q_2 - Q_1}{Q_1} \times 100 = \frac{17,500 - 10,000}{10,000} \times 100 = 75\%
c
Calculate Percentage Change in Price: The initial price (P1P_1) is 4,andthenewprice(4, and the new price (P_2)is) is 5. The percentage change in price is calculated as: %ΔP=P2P1P1×100=544×100=25%\% \Delta P = \frac{P_2 - P_1}{P_1} \times 100 = \frac{5 - 4}{4} \times 100 = 25\%
d
Calculate Price Elasticity of Supply: Using the percentage changes calculated, the price elasticity of supply is: PES=%ΔQs%ΔP=75%25%=3PES = \frac{\% \Delta Q_s}{\% \Delta P} = \frac{75\%}{25\%} = 3
Answer
(C) 3
Key Concept
Price Elasticity of Supply
Explanation
The price elasticity of supply measures how much the quantity supplied of a good responds to a change in its price. In this case, the quantity supplied of socks increased by 75% when the price increased by 25%, resulting in a price elasticity of supply of 3.

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