Addrisi Pasta is currently in equilibrium, where they supply 50,000 one-pound boxes of spaghetti for $1.00 per box. The price elasticity of demand for Addrisi Pasta is 1.28, and the price elasticity of supply for the pasta is 0.86. This quarter, demand for pasta has increased by 8%. The new equilibrium price will be:
Elasticity in economics measures to what extent a variation in a certain commodity's price affects its demand and supply. Elasticity more than1 implies the commodity reacts strongly with a price change, which could be happening because its substitutes are available in the market in huge quantities.