If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is
A) 2.
B) 1.
C) -2.
D) -1.
E) 100 per cent.

Question

Quizplus · Accepted Answer

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. In this case, we can use the formula for price elasticity of supply:

% change in quantity supplied / % change in price

We know that when the price doubles, the quantity supplied also doubles, so we can calculate the % change in quantity supplied and % change in price:

% change in quantity supplied = (2Q - Q) / Q = 100%

% change in price = (2P - P) / P = 100%

Plugging these values into the formula, we get:

Price elasticity of supply = 100% / 100% = 1

Since the elasticity value is equal to 1, we can conclude that supply is unit elastic.

If the Price Doubles and the Quantity Supplied Also Doubles