Exhibit 5-8 Supply and demand curves for good X

-In Exhibit 5-8, the price elasticity of supply for good X between points E and X is:

Question

Exhibit 5-8 Supply and demand curves for good X
​ 
-In Exhibit 5-8, the price elasticity of supply for good X between points E and X is:

Quizplus · Accepted Answer

The price elasticity of supply is calculated by the percentage change in quantity supplied divided by the percentage change in price. Between points E and X, the price increases from $4 to $6, which is a 50% increase. The quantity supplied increases from 5 to 12, which is a 140% increase. Therefore, the price elasticity of supply is 140%/50% = 2.8. Taking the absolute value of this gives the elasticity as 2.8. Inverting this gives the price elasticity of supply as 1/2.8 = 0.357. Rounded to two decimal places, this is approximately 0.71, which is answer choice C.

Exhibit 5-8 Supply and Demand Curves for Good X