On a certain supply curve, one point is (quantity supplied=299, price=$4.00) and another point is (quantity supplied=250, price=$4.50). Using the midpoint method, the price elasticity of supply is about

a) 0.22. A 1% increase in price results to a 0.22% decrease in quantity supplied

b) 0.22. A 1% increase in price results to a 0.222% increase in quantity supplied

c) 1.89. A 1% increase in price results to a 1.89% decrease in quantity suppllied

d) 1.89. A 1% increase in price results to a 1.89% increase in quantity supplied

The Midpoint formula for price elasticity of supply is:

For calculating the price elasticity of supply, rather than using simple percentage changes in quantity and price, the average percent change in both quantity and price are taken into consideration. This is called the Midpoint Method for Elasticity:

Price Elasticity of Supply= Percentage change in Quantity supplied/Percentage change in Price

Percentage change in Quantity Supplied= {(Q2-Q1)/ (Q2+Q1)/2} X100

Percentage change in Price= {(P2-P1)}/(P2+P1)/2}X100

Q1= 299

P1= 4

Q2= 250

P2= 4.5

Percentage change in Quantity Supplied= {(250-299)/ (250+299)/2} X100 = -17.85%

Percentage change in Price= {(4.5-4)}/(4.5+4)/2}X100= 11.76%

price elaticity of supplied= -17.85% /11.76% = -1.52