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9 July, 15:03

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.

A. In the short run, a price increase from $1 to $2 is unit elastic (Es = 1.0). So how many popsicles will be sold each day in the short run if the price rises to $2 each?

B. 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?

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  1. 9 July, 15:23
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    (A.) In the short run if the price rises to $2 each,

    change in price = 2-1

    = 1

    % change in price = (1/1) * 100

    =100%

    % change in quantity / % change in price = Es

    % change in quantity / 100 = 1

    % change in quantity = 1*100

    = 100%

    It means supply will increase by 100%.

    So new total supply will be = 100 + 100 * 1

    = 100 + 100

    =200 units.

    In the short term, the new supply will be 200 units.

    (B.)

    In the long run if the price rises to $2 each

    change in price = 2-1

    = 21

    % change in price = (1/1) * 100

    =100%

    % change in quantity / % change in price = Es

    % change in quantity / 100 = 1.5

    % change in quantity = 1.5*100

    = 150%

    It means supply will increase by 150%.

    So new total supply will be = 100+100 * 1.5

    = 100+150

    =250units.

    The long-term new supply will be 250 units per day.
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