Suppose when the price of tulips is $4.58 per bunch, the quantity supplied is 53 bunches. If the price changes to $8.27 per bunch, the quantity supplied is 124 bunches. Calculate the elasticity of supply.

The formula to find price elasticity of supply is % change quantity supplied/%change in price.

P is often used to denote price and Qs is used to denote quantity supplied.

The formula to find %change is = (New value - Old Value)/Old Value X 100 = %

Often economists use the mid point method, which adjusts for the direction of the price change. It is ((New value - Old Value)/(New value + Old Value)X.5) X 100 = %

First I will calculate the price elasticity without the midpoint method.

%changeQs = 124-53/53 X 100 = 134%

%changeP = $8.27-$4.58/$4.58 X 100 = 80.5%

Price elasticity of supply = 134%/80.5% = 1.66

This means the supply curve is relatively elastic because the value is above 1.

Next I will calculate the price elasticity using the midpoint method.

%changeQs = 124-53/88.5 X 100 = 80%

%changeP = $8.27-$4.58/$6.425 X 100 = 57%

Price elasticity of supply = 80%/57% = 1.4

This means the supply curve is relatively elastic because the value is above 1. The two values are very similar in this case and both have shown a relatively elastic supply curve.