Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?
A) 8 percent
B) 12.5 percent
C) 20 percent
D) 45 percent

Question

Quizplus · Accepted Answer

The price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price. In this case, the price elasticity of supply is 2.5, which means that a 1% increase in price will lead to a 2.5% increase in quantity supplied. To increase production by 20%, the price would have to rise by 20% / 2.5 = 8%.

Suppose the Price Elasticity of Supply for Crude Oil Is