Answer:
Paolo's price elasticity of supply is 0.80.
Explanation:
From the question, we have:
New quantity supplied = 150
Old quantity supplied = 100
New price = $5
Old price = $3
Generally, the formula for calculating the price elasticity of supply is as follows:
Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price ................ (1)
Where, based on the midpoint formula, we have:
Percentage change in quantity supplied = {(New quantity supplied - Old
quantity supplied) / [(New quantity supplied + Old quantity supplied) /
2]} * 100 = {(150 - 100) / [(150 + 100) / 2]} * 100 = 40%
Percentage change in price = {(New price - Old price) / [(New price + Old
price) / 2]} * 100 = {(5 - 3) / [(5 + 3) / 2]} * 100 = 50%
Substituting the values into equation (1), we have:
Price elasticity of supply = 40% / 50% = 0.80
Therefore, Paolo's price elasticity of supply is 0.80.
