Question

Suppose that over the past ten years price of Kona coffee increased by 20% and the...

Suppose that over the past ten years price of Kona coffee increased by 20% and the total number of pounds of Kona coffee sold on the market increased by 5%.

1. Calculate price elasticity of demand for Kona coffee using this information.

2. Calculate price elasticity of supply.

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Answer #1

1.Price elasticity of demand

Percentage change in price=20℅

Percentage change in quantity demanded=5℅

Price elasticity of demand=percentage change in quantity demanded ÷ percentage change in price

=5÷20

=0.25

2.Price elasticity of supply

Percentage change in price=20%

Percentage change in quantity supplied=5%

Price elasticity of supply= percentage change in quantity supplied ÷ percentage change in price

=5÷20

=0.25

While calculating I have taken percentage change in quantity demand to be equal to percentage change in quantity supplied.

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