If the price of oil increases from $80 to $90 per barrel, the quantity supplied increases from 100 to 105 million barrels per day. What is the price elasticity of supply using the midpoint method?

The correct answer is 0.41.

Explanation:

According to the scenario, the computation of the given data by using mid point formula are as follows:

Price elasticity = (Change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of quantity demanded)  

where,  

Change in quantity demanded can be calculated as:

= Q2 - Q1

= 105 - 100

= 5 millions

And, average of quantity demanded can be calculated as:

= (105 + 100) ÷ 2

= 102.5

Change in price can be calculated as:

= P2 - P1

= $90 - $80

= -$10

And, average of price can be calculated as:

= ($90 + $80) ÷ 2

= 85

By putting the following value in the formula, we get:

= (5 ÷ 102.5) ÷ ($10 ÷ 85)  

= 0.41

Hence, the price elasticity of supply using the midpoint method is 0.41.

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