Suppose that when the price of a good is $10, quantity supplied is 20 and when the price is $6, quantity supplied is 12. The price elasticity of supply (measured by point elasticity method) is:
A) 0.5.
B) 0.8.
C) 1.
D) 1.5.

Question

Quizplus · Accepted Answer

Using the point elasticity method, we can calculate the price elasticity of supply as:

Elasticity = (Percentage change in quantity supplied) / (Percentage change in price)

Percentage change in quantity supplied = ((New quantity supplied - Old quantity supplied) / Old quantity supplied) x 100%
= ((12 - 20) / 20) x 100%
= -40%

Percentage change in price = ((New price - Old price) / Old price) x 100%
= ((6 - 10) / 10) x 100%
= -40%

Plugging in these values, we get:

Elasticity = (-40% / -40%) = 1

Therefore, the price elasticity of supply is 1, which means that a 1% change in price will result in a 1% change in quantity supplied in this case.

Suppose That When the Price of a Good Is $10