HW-Elasticity of Supply AGBM 102, Spring 2020

Table 1: Supply schedule for

bacon Table 2: Supply schedule for bacon
($/ pound) ($/pound)
Price Quantity PRICE $ QUANTITY
$1.00 4.75 $2.50 10
$2.50 8 $3.75 12.5
$3.75 10.5 $4.00 15
$4.00 13 $5.60 16.5
$5.60 16 $12.25 19

1. Using Table 2,
a. Calculate the supply curve if P1= $12.25 and P2= $4.00

Q=13.1−0.48 P

m
er as
b. Show the mathematical check for your derived supply equation using two different price
points from the supply schedule.

co
eH w
Q=a+bP ( 19−15 )

o.
b= Q=13.1−0.48 P
rs e ( 12.25−4 )
a=19−( 0.48 x 12.25 )
ou urc
a=13.1 Q=13.1+(0.48 x 12.25)
( Q 1−Q 2 ) (4 )
b= b= a=15−( 0.48 x 4 ) Q=19
( P 1−P 2 ) ( 8.25 ) a=13.1 Q=13.1+(0.48 x 4 )
o

Q=15
aC s

a=Q−bP b=0.48
vi y re

c. Calculate the point elasticity of supply using those points on the supply curve.
ed d

( 15−19 ) −0.21
ar stu

( Q 2−Q 1 ) (−4 ) ε=
( 19 ) ( 19 ) −0.67
(Q 1 ) ε= ε=
ε= ( 4−12.25 ) (−8.25 )
( P 2−P 1 ) ε =0.31
is

( P 1) ( 12.25 ) (12.25)
Th

d. What does the elasticity that you calculated tell you about supply?
sh

The point elasticity of supply is 0.31, which is greater than zero, and less than one. This indicates that the
demand is inelastic and has a low responsiveness to changes in price, such that demand does not change
more than price does. In this case, for every 1% increase in price, there would be an increase in quantity by
0.31%; on the contrary, for every 1% decrease in price, there would be a decrease in quantity of 0.31%.

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