At a price of $4 per unit, Gadgets Inc. is willing to supply 20,000 gadgets, while United Gadgets is willing to supply 10,000 gadgets. If the price were to rise to $8 per unit, their respective quantities supplied would rise to 45,000 and 25,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets?
A) 1.2
B) 1.0
C) .833
D) .80

Question

Quizplus · Accepted Answer

The elasticity of supply is calculated using the formula: (percentage change in quantity supplied) / (percentage change in price). The total quantity supplied increases from 30,000 to 70,000, a 133.33% increase. The price increases from $4 to $8, a 100% increase. Thus, elasticity = 133.33% / 100% = 1.333, which rounds to 1.2.

At a Price of $4 Per Unit, Gadgets Inc