question archive Currently, at a price of $1 each 100 popsicles are sold per day in the perpetually hot town of Rostin
Currently, at a price of $1 each 100 popsicles are sold per day in the perpetually hot town of Rostin
Subject:EconomicsPrice:2.88 Bought3
Currently, at a price of $1 each 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply.
In the short run, a price increase from $1 to $2 is unit-elastic (E1 = 1.0).
So how many popsicles will be sold each day in the short run if the price rises to $2 each? In the long run, a price increase from $1 to $2 has an elasticity of supply of 1.50.
So how many popsicles will be sold per day in the long run if the price rises to $2 each? (Hint: Apply the midpoints approach to the elasticity of supply)
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In the short run, the percentage change in the price of popsicles is 100%.
The elasticity of supply = %age change in the quantity supplied / %age change in the price
=> %age change in the quantity supplied = 1 x 100 = 100%
Hence Quantity supplied in the short-run = 100 + 100 = 200 units.
Similarly, in the long run,
%age change in the quantity supplied = 100 x 1.5 = 150%
Hence, the quantity supplied = 100 + 150 = 250 units.
