Using the data in the table, calculate the price elasticity of supply and demand
ID: 1169758 • Letter: U
Question
Using the data in the table, calculate the price elasticity of supply and demand over the range of $10-$14 Suppose that a 5% increase in the price of chicken sandwiches results in the following changes in sales at a local Wendy's Burger sales increase by 3% Drink sales drop by 3% Chicken sandwich sales fall by 7.5% Compute the relevant price and cross-price elasticity of demand. How can this information be used? Basic commodities, like wheat, are known to have low income elasticities, such as 0.90. Over time, consumer incomes tend to rise. Is wheat a normal or inferior good? Why? As income rises, what will happen to the demand for wheat and the quantity of wheat purchased? What will happen to the proportion of their incomes that consumers spend on wheat?Explanation / Answer
Calculate price elasticity of supply over the range of $10-$14 -
When price is $10 per pizza, 400 units of pizzas are supplied.
When price is $14 per pizza, 500 units of pizzas are supplied.
Change in price = $14 - $10 = $4
Percentage change in price = (Change in price/Initial price)*100
Percentage change in price = ($4/$10)*100
Percentage change in price = 40%
Change in quantity supplied = 500 - 400 = 100
Percentage change in quantity supplied = (Change in quantity supplied/Initial quantity supplied)*100
Percentage change in quantity supplied = (100/400)*100
Percentage change in quantity supplied = 25%
Price elasticity of supply = Percentage change in quantity supplied/Percentage change in price
Price elasticity of supply = 25/40
Price elasticity of supply = 0.625
The price elasticity of supply over the range $10-$14 is 0.625.
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