Suppose a decrease in world demand for potash (used in the production of fertilizer)decreases the price by 5 percent.Annual Canadian production decreases by 2 percent.What is the elasticity of supply of Canadian potash?
A)0.2
B)0.4
C)0.5
D)1.0
E)2.5

Question

Quizplus · Accepted Answer

Elasticity of supply = (% change in quantity supplied)/(% change in price)

Since the price decreases by 5 percent and annual Canadian production decreases by 2 percent, the % change in quantity supplied is -2/5 = -0.4.

Therefore, the elasticity of supply of Canadian potash is:

Elasticity of supply = (-0.4)/(-5/100) = 0.4/0.05 = 8/1 = 0.4.

So, the answer is B.

Suppose a Decrease in World Demand for Potash (Used in the Production