Suppose that in a week the price of Greek yogurt increases f

Suppose that in a week the price of Greek yogurt increases from $ 1.25/lb to $1.75/lb. At the same time, the quantity of Greek yogurt supplied increases from 100,000 lbs to 180,000 lbs. What is the price elasticity of supply for Greek yogurt?

Solution

Price elasticity of Supply for Greek yogurt measures the respose in supply of yogurt due to change in price of yogurt. it is calculated as per the following formula.

Price elasticity of Supply for Greek yogurt = percentage change in Supply of yogurt / Percentage change in Price of yogurt

percentage change in Supply of yogurt = (new supply of yogurt - old supply of yogurt) / Old supply of yogurt

percentage change in Supply of yogurt = (150000 - 100000)/100000 = .5 (50%)

Percentage change in Price of yogurt = (new price of yogurt - old price of yogurt) / old price of yogurt

Percentage change in Price of yogurt = (1.75 - 1.25) / 1.25 = .4   (40%)

Price elasticity of Supply for Greek yogurt = percentage change in Supply of yogurt / Percentage change in Price of yogurt

Price elasticity of Supply for Greek yogurt = .5 / .4 = 1.25