Suppose that in a month the price of a liter of soda increases from $1 to $1.50. At the same time, the quantity of liters of soda supplied increases from 200 to 210. The price elasticity of supply for liters of soda calculated using the initial value formula)is:
A)negative.
B)inelastic.
C)unitary elastic.
D)elastic.

Question

Quizplus · Accepted Answer

The price 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 (210-200)/200 = 0.05 or 5%, and the percentage change in price is (1.50-1)/1 = 0.5 or 50%. The elasticity is 0.05/0.5 = 0.1, which is less than 1, indicating that the supply is inelastic.

Suppose That in a Month the Price of a Liter