Suppose an increase in world demand for potash (used in the production of fertilizer)increases the price from $285 per tonne to $315 per tonne.Annual Canadian production increases from 15 million tonnes to 17 million tonnes.What is the elasticity of supply of Canadian potash?
A)0.5
B)0.8
C)1.0
D)1.25
E)2.5

Question

Quizplus · Accepted Answer

The elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity is (17-15)/15 = 0.1333, and the percentage change in price is (315-285)/285 = 0.1053. Elasticity = 0.1333/0.1053 = 1.265, which is closest to 1.25.

Suppose an Increase in World Demand for Potash (Used in the Production