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Slides By Timothy Diette and Kevin Brady

Interactive Examples. Elasticity of Supply. Begin. To navigate, please click the appropriate green buttons. (Do not use the arrows on your keyboard). Material from this presentation can be found in: Chapter 5. Slides By Timothy Diette and Kevin Brady. CoreEconomics, 2e.

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Slides By Timothy Diette and Kevin Brady

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  1. Interactive Examples Elasticity of Supply Begin To navigate, please click the appropriategreenbuttons. (Do not use the arrows on your keyboard) Material from this presentation can be found in: Chapter 5 Slides By Timothy Diette and Kevin Brady CoreEconomics, 2e

  2. Interactive Examples Elasticity of Supply QUESTION 1: On some college campuses students are hired by organizations to serve as sober drivers to help students get home safely after parties. The supply of sober drivers at Western State University is represented by the supply curve on the graph to the right. Calculate the elasticity of supply if the price (hourly wage) of sober drivers increases from $15 per hour to $20 per hour. Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers Answer

  3. Interactive Examples Elasticity of Supply ANSWER TO QUESTION 1: Recall that the elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity: = (Qnew – Qold) / Qold As the hourly wage for sober drivers increases from $15 to $20, the quantity supplied will increase from 300 to 600 hours. = (600 – 300) / 300 = (300/300) = 1.00, or 100% Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers Answer

  4. Interactive Examples Elasticity of Supply ANSWER TO QUESTION 1: The percentage change in price: = (Pnew – Pold) / Pold = (20 – 15) / 15 = 5/15 = .3333, or 33.33% Therefore, the elasticity of supply: Es = (% change in Qs) / (% change in Price) = 100% / 33.33% = 3.00 Next Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers

  5. Interactive Examples Elasticity of Supply QUESTION 2: Now use the midpoint formula to calculate the elasticity of supply if the price (hourly wage) of sober drivers increases from $15 per hour to $20 per hour. Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers Answer

  6. Interactive Examples Elasticity of Supply ANSWER TO QUESTION 2: Recall that the elasticity of supply is the percentage change in quantity divided by the percentage change in price. The percentage change in quantity: = ((QNew – QOld)/((QNew + QOld )/2)) As the price increases from $15 to $20 per hour of sober driving, the quantity supplied will increase from 300 to 600 hours. = ((600 – 300)/((600 + 300)/2)) = (300/(900/2)) = (300/450) = 0.667, or 66.7% Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers Answer

  7. Interactive Examples Elasticity of Supply ANSWER TO QUESTION 2: The percentage change in price: = ((PNew – POld)/((PNew + POld )/2)) = ((20 – 15)/((20 + 15)/2)) = (5/(35/2)) = (5/17.5) = 0.286, or 28.6% Therefore, the elasticity of supply: = 66.7% / 28.6% = 2.33 Notice the difference between the elasticity of demand using the two different formulas! Price $30 $25 $20 Supply $15 $10 $5 100 200 300 400 500 600 Hours of Sober Drivers The End

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