As the price of a good falls from $5 to $3, the quantity supplied of the good falls from 550 units to 400 units. Price elasticity of supply is
A)0.95.
B)1.20.
C)1.58.
D)0.63.

Question

Quizplus · Accepted Answer

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 supplied is ((400-550)/550)*100 = -27.27%, and the percentage change in price is ((3-5)/5)*100 = -40%. The elasticity is 27.27/40 = 0.68, which is closest to 0.63.

As the Price of a Good Falls from $5 to $3