The elasticity of supply of rental units in New York City is estimated to be about 0.10.Current price restrictions (price floors)are estimated to decrease the price of rental units by 10% below equilibrium price.By how much would price and quantity supplied change if the price floors were removed from the rental unit market in New York City?
A) Price will increase by 10% and quantity supplied will increase by 1%.
B) Price will decrease by 10% and quantity supplied will increase by 1%.
C) Price will increase by 10% and quantity supplied will decrease by 1%.
D) Price and quantity supplied will increase by 10%.

Question

Quizplus · Accepted Answer

The elasticity of supply measures how much the quantity supplied responds to a change in price. With an elasticity of 0.10, a 10% increase in price (removing the price floor allows prices to return to equilibrium, which is 10% higher) would lead to a 1% increase in quantity supplied (0.10 elasticity multiplied by the 10% price increase).

The Elasticity of Supply of Rental Units in New York