If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent:
A) the quantity supplied of Good X rises by 7.5 percent.
B) the quantity supplied of Good X rises by 133 percent.
C) the quantity supplied of Good X falls by 7.5 percent.
D) the quantity supplied of Good X falls by 133 percent.

Question

Quizplus · Accepted Answer

Price elasticity of supply measures the responsiveness of the quantity supplied to changes in price. A price elasticity of supply of 0.75 means that for a 1% change in price, the quantity supplied changes by 0.75%. Therefore, when the price of Good Y falls by 10%, the quantity supplied of Good X will fall by 7.5%, which is 10% multiplied by 0.75. Choice C reflects this decrease in quantity supplied.

If the Price Elasticity of Supply Is 0