If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about
A) 0.63, and supply is elastic.
B) 0.63, and supply is inelastic.
C) 1.60, and supply is elastic.
D) 1.60, and supply is inelastid.

Question

Quizplus · Accepted Answer

Price elasticity of supply is measured by the percentage change in quantity supplied divided by the percentage change in price. Using the given information,
% Change in Price = 25%
% Change in Quantity Supplied = 40%
Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
Price Elasticity of Supply = (40%)/(25%) = 1.6
Since the elasticity is greater than 1, supply is considered to be elastic, meaning that a change in price results in a relatively larger change in quantity supplied.

If a 25% Change in Price Results in a 40