Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterize the product.
A)2; The product is elastic.
B)0.2; The product is inelastic.
C)0.5; The product is inelastic.
D)50%; The product is inelastic.

Question

Quizplus · Accepted Answer

Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price.
In this case, the percentage change in quantity supplied is 2 percent and the percentage change in price is 4 percent. 
So, price elasticity of supply = (2/4) = 0.5
Since the value of price elasticity of supply is less than 1, the product is considered inelastic. Therefore, option C is the correct answer.

Suppose a 4 Percent Increase in Price Results in a 2