Consider two markets: the market for motorcycles and the market for pancakes. The initial equilibrium for both markets is the same, the equilibrium price is $2.50 , and the equilibrium quantity is 25.0 . When the price is $10.75 , the quantity supplied of motorcycles is 65.0 and the quantity supplied of pancakes is 105.0 . For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for pancakes. Please round to two decimal places.

Elasticity is an economic metric that looks into the proportional change of an economic variable in response to a change in another. Therefore, elasticity of supply refers to the ratio of the proportionate change in the quantity supplied to the proportionate change in price. A higher value of elasticity implies supply sensitivity to price changes. The converse is also true.

Given,

Equilibrium price, [tex]E_{p} = [tex]P_{1}[/tex]=2.50[/tex]

Equilibrium quantity, [tex]E_{q} = [tex]Q_{1}[/tex] =25.0[/tex]

At price 10.75= [tex]P_{2}[/tex]

Quantity supplied of pancakes, [tex]Q_{2}[/tex]=105.0

Elasticity of supply of pancakes, [tex]e_{p}[/tex]

= [tex]\frac{percentage change in quantity supplied}{percentage change in price} =\frac{ Q2-Q1/(Q2+Q1/2)}{ P2-P1/(P2+P1/2)} =\frac{105-25/(105+25/2 }{10.75-2.50/(10.75+2.50/2) } \\=\frac{80/65 }{8.25/6.625 } = \frac{80}{65} *\frac{ 6.625}{8.25} \\=\frac{530}{536.25} \\\\= 0.99[/tex]

The elasticity of supply for pancake is 0.99