When banana prices decreased from $15 to $9 per box, Caribbean production fell from 8 million to 6 million boxes per month

Economics Jan 19, 2021

When banana prices decreased from $15 to $9 per box, Caribbean production fell from 8 million to 6 million boxes per month. Calculate the price elasticity of supply for Caribbean banana producers using the midpoint formula. Like the corresponding formula for demand, this formula calculates the percentage change in quantity and price by dividing the change in the variable by the midpoint of the two values. The elasticity is the percentage change in quantity divided by the percentage change in price.

Expert Solution

We'll use the formula for the price elasticity of supply. It's as follows:

Price elasticity of supply = ((old quantity - new quantity)/((old quantity + new quantity)/2)) / ((old price - new price)/((oldprice + new price)/2)

= (8 - 6)/((8 + 6)/2) / ((15 - 9)/((15 + 9)/2)

= (2/7)/(6/12)

= 4/7 (or 0.5714 in decimal form)

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