4Q- 40 In response to the influx of tourists, the demand for guest rooms in Sun-n-Surf, a resort hotel on a south pacific island, went up from 100 to 150 rooms. As a result, Sun-n-Surf management has decided to increase the tariff from $150 to $200 a night per room. The elasticity of supply of rooms in Sun-n-Surf is closest to: 4Q- A. 0.67. 4Q- B. 0.72. 4Q- C. 1.40. 4Q- D. 1.50. ---------------------------------------------------------------- my answer:A. elasticity of supply=[(150-100 )/(150+100)]/[(200-100)/(200+100)]=0.6. the formula is correct, but still far from A 0.67. --------
Why not C? You are not taking the average.
you divide by the average change for both price and quantity. its not (150-100)/(150+100) the denominator has to be (150+100)/2 same for price its not just 200+150 its rather (200 +150)/2. Check your book if this explantion is not cler
annexguy, check your numbers on price change: is grows from 150 to 200, not from 100 to 200. The rest is correct, except that with the correct numbers the answer is C. And that would be normal, considering the law of supply. What I am not sure of is whether to calculate elasticity @midpoint or simply as percentage change in quantity supplied/percentage change in price at origins, not at the mid interval (that would give answer D). Going ahead with CFAI text, that would be answer C.
to get average , we divide 2 in both denominator and numerator, don’t we. it is same result, check this out http://en.wikipedia.org/wiki/Price_elasticity_of_demand Oh, I made mistake for the P change should be C elasticity of supply=[(150-100 )/(150+100)]/[(200-150)/(200+150)]=1.4
If what you mean is that you take the middle point in Q (125) and divide by the mid point in price ($175), then that is not true. Because you want to look at the slope, i.e. the change in these values. not their absolute values.
Dreary Wrote: ------------------------------------------------------- > If what you mean is that you take the middle point > in Q (125) and divide by the mid point in price > ($175), then that is not true. Because you want > to look at the slope, i.e. the change in these > values. not their absolute values. ------------------------------------------------- no, I use ave. to get the % change.then divide % change for elasticity.
annexguy Wrote: ------------------------------------------------------- > 4Q- 40 In response to the influx of tourists, the > demand for guest rooms in Sun-n-Surf, a resort > hotel on a south pacific island, went up from 100 > to 150 rooms. As a result, Sun-n-Surf management > has decided to increase the tariff from $150 to > $200 a night per room. The elasticity of supply of > rooms in Sun-n-Surf is closest to: > 4Q- A. 0.67. > 4Q- B. 0.72. > 4Q- C. 1.40. > 4Q- D. 1.50. > -------------------------------------------------- > -------------- > my answer:A. elasticity of supply=[(150-100 > )/(150+100)]/[(200-100)/(200+100)]=0.6. the > formula is correct, but still far from A 0.67. > -------- I get 7/5 or 1 & 2/5 or 1.4