Slides By Timothy Diette and Kevin Brady Elasticity of Supply Begin Interactive Examples CoreEconomics, 2e 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

Answer 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. Elasticity of Supply Price $15 $20 $25 $30 600Hours of Sober Drivers Supply $10 $5 100 Interactive Examples

Answer Elasticity of Supply Price $15 $20 $25 $30 600Hours of Sober Drivers Supply $10 $5 100 Interactive Examples 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: = (Q new – Q old ) / Q old 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%

Elasticity of Supply Price $15 $20 $25 $30 600Hours of Sober Drivers Supply $10 $5 100 Interactive Examples ANSWER TO QUESTION 1: The percentage change in price: = (P new – P old ) / P old = (20 – 15) / 15 = 5/15 =.3333, or 33.33% Therefore, the elasticity of supply: E s = (% change in Q s ) / (% change in Price) = 100% / 33.33% = 3.00 Next

Answer 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. Elasticity of Supply Price $15 $20 $25 $30 600Hours of Sober Drivers Supply $10 $5 100 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: = ((Q New – Q Old )/((Q New + Q Old )/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)/(( )/2)) = (300/(900/2)) = (300/450) = 0.667, or 66.7% Price $15 $20 $25 $ Supply $10 $5 100Hours of Sober Drivers Interactive Examples Answer

Elasticity of Supply ANSWER TO QUESTION 2: The percentage change in price: = ((P New – P Old )/((P New + P Old )/2)) = ((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! The End Price $15 $20 $25 $ Supply $10 $5 100Hours of Sober Drivers Interactive Examples