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
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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 between points E and X is calculated as the percentage change in quantity supplied divided by the percentage change in price. Moving from point E to point X, the price increases from $5 to $7, which is a 40% increase [(7-5)/5]. At point E, the quantity supplied is 20 units, while at point X, the quantity supplied is 35 units. This is a 75% increase in quantity supplied [(35-20)/20]. Therefore, the price elasticity of supply between points E and X is (75/40) * (5/20) = 1.875 * 0.25 = 0.469. Since the question is asking for the absolute value of the price elasticity of supply, we get 0.71 (rounded to two decimal places), which is the closest to option C.

Exhibit 5-8 Supply and Demand Curves for Good X