Suppose that after a 10 per cent increase in the price of timber, a forestry-company increases its supply of timber by four per cent in the next three months, and eight per cent by 12 months. This means that the elasticity of supply is _____.
A) 0.4 at three months and 0.8 at 12 months
B) 0.8 at three months and 0.4 at 12 months
C) 2.5 at three months and 1.25 at 12 months
D) 1.25 at three months and 2.5 at 12 months

Question

Quizplus · Accepted Answer

Elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. At three months, the elasticity is 4%/10% = 0.4, and at 12 months, it is 8%/10% = 0.8.

Suppose That After a 10 Per Cent Increase in the Price