When supply is written as Q = c + dP and P* and Q* are the equilibrium values for price and quantity, which of the following is the value of the price elasticity of supply, E_S? A) c(P*/Q*) B) d(P*/Q*) C) -c/d D) -d/c

Question

Quizplus · Accepted Answer

The formula for price elasticity of supply (ES) is percentage change in quantity supplied divided by percentage change in price (ES = (%ΔQ)/(%ΔP)). Using calculus, it can be shown that in the linear supply function Q = c + dP, ES = (dP*/Q*), where P* and Q* are the equilibrium values for price and quantity. Therefore, the value of E_S would be (dP*/Q*). This matches with option B.

When Supply Is Written as Q = C + DP