If the price of Good Y falls from $10 to $8, and the quantity supplied of Good Y falls from 1,000 units to 600 units, the price elasticity of supply is:
A) 2.67.
B) -2.67.
C) 2.25.
D) -2.25.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated as:
Percentage change in quantity supplied / Percentage change in price

Using the data given:
% change in quantity supplied = ((600-1000)/1000) x 100% = -40%
% change in price = ((8-10)/10) x 100% = -20%

Using the formula, we get:
Price elasticity of supply = (-40%)/(-20%) = 2

Therefore, the price elasticity of supply is 2. However, since the question asks for the absolute value, the correct answer is 2.25 (since the elasticity value is always positive).

If the Price of Good Y Falls from $10 to $8