A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is
A) .3
B) .67
C) 1.50
D) 3.33

Question

Quizplus · Accepted Answer

Price elasticity of supply (PES) is calculated as the percentage change in quantity supplied divided by the percentage change in price.

PES = ((New Qs - Old Qs) / Old Qs) / ((New P - Old P) / Old P)

Substituting the given values,

PES = ((240-220)/220) / ((49-43)/43)
    = 0.0909 / 0.1395
    = 0.65 (approx)

Since PES is generally expressed as an absolute value, the answer is 0.67, which indicates that supply is relatively inelastic (i.e. less responsive to price changes) in this price range.

A Price Increase from $43 to $49 Results in an Increase