Question

Consider two markets: the market for cat food and the market for dog food. The initial equilibrium for both markets is the same, the equilibrium price is $1.50$1.50, and the equilibrium quantity is 27.027.0. When the price is $10.75$10.75, the quantity supplied of cat food is 51.051.0 and the quantity supplied of dog food is 105.0105.0. For simplicity of analysis, the demand for both goods is the same.

Using the midpoint formula, calculate the elasticity of supply for dog food. Please round to two decimal places.

Supply in the market for cat food is

the same elasticity as supply in the market for dog food.

more elastic than supply in the market for dog food.

less elastic than supply in the market for dog food.

There is not enough information to tell which has a higher elasticity.

Answer 1

Initially the price is $1.50 and quantity is 27 units. When price is $10.75, quantity is 51 units for cat food and 105 units for dog food. Using the mid-point rule

Ed = (Q2 – Q1) / [(Q2 + Q1)/2] / (P2 – P1) / [(P2 + P1)/2]

we find that elasticity of supply for cat food is 0.41 and the elasticity of supply for dog food is 0.78

Cases	Q1	Q2	P1	P2	Q2-Q1	(Q2+Q1)/2	%Q	P2-P1	(P1+P2)/2	%P	Ed
Cat food	27.00	51.00	1.50	10.75	24.00	39.00	61.54	9.25	6.13	151.02	0.41
Dog food	27.00	105.00	1.50	10.75	78.00	66.00	118.18	9.25	6.13	151.02	0.78

Supply in the market for cat food is less elastic than supply in the market for dog food. This is because it is 0.41, which is less than 0.78