Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: Price (Dollars) Demand (Millions) Supply (Millions) 60 22 14 80 20 16 100 18 18 120 16 20 Calculate the price elasticity of supply when the price is $80.

PES = -0.5 or |0.5| in absolute terms, relatively inelastic supply

Explanation:

Price (Dollars)         Demand (Millions)             Supply (Millions)

$60                                      22                                      14

$80                                      20                                      16

$100                                     18                                       18

$120                                     16                                      20

Calculate the price elasticity of supply when the price is $80.

In order to calculate the PES at $80, we can use either the quantity when the price is $60 or $100.

P₀ = $80

P₁ = $60

Q₀ = 16

Q₁ = 14

or

P₀ = $80

P₁ = $100

Q₀ = 16

Q₁ = 18

the answer should be the same in this case:

PES = (-2/16) / ($20/$80) = -0.125 / 0.25 = -0.5 or |0.5| in absolute terms, relatively inelastic supply

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