Question

Under ceteris paribus if the quantity supplied of a good increases by 6% due to an increase in its price by 5% then what will be the value of price elasticity of supply of the good?

• A. 30
• B. 0.83
• C. 1.2
• D. 2

Hint:

Elasticity = (% Change in Supply) / (% Change in Price). Just divide the two percentages.

Answer 1

The Correct Option is C

The formula for price elasticity of supply (PES) is: \[ PES = \frac{%\ \text{Change in Quantity Supplied}}{%\ \text{Change in Price}} \] Given:

% Change in Quantity Supplied = +6%
% Change in Price = +5%
Plugging the values into the formula: \[ PES = \frac{6%}{5%} = 1.2 \] Since the value is greater than 1, the supply is elastic.