If the price of music CDs increases by 10 percent and the quantity supplied increases by 20 percent, the elasticity of supply is equal to 2.0, perhaps indicating the ease of increased production at a relatively constant unit cost.

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Quizplus · Accepted Answer

An elasticity of supply greater than 1 indicates a relatively elastic supply, meaning that the quantity supplied is responsive to changes in price. In this case, a 10 percent increase in price led to a 20 percent increase in quantity supplied, indicating an elasticity of 2.0, and suggesting that producers are able to increase production relatively easily and efficiently.

If the Price of Music CDs Increases by 10 Percent