When the price of widgets increases from $100/widget, to $140/widget, the quantity supplied increases, from 1100 widgets per week, to 1300 widgets per week. Using the midpoints formula, the price elasticity of supply of widgets must be:

A) unit elastic

B) inelastic, but not perfectly so

C) perfectly elastic

D) perfectly inelastic

E) elastic, but not perfectly so

The formula of price elasticity using midpoint is:

• Price elasticity = (Change in quantity / Original quantity) / (Change in price / Original price)

Let us compute the change in quantity and change in price.

• Change in quantity = New quantity - Old quantity
• Change in quantity = 1,300 widgets - 1,100 widgets = 200 widgets
• Change in price = New price - Old price
• Change in price = $140 - $100 = $40

Now, we compute the price elasticity.

• Price elasticity = (200 / 1,100) / ($40 / $100)
• Price elasticity = 0.1818 / 0.4 = 0.45 (rounded off to two decimal places)

The price elasticity is 0.45. This means that the supply of widgets is B) inelastic, but not perfectly so . The price elasticity between 1 and zero is inelastic. This shows that the quantity supplied changes are slightly less than the price changes.