Suppose a 4 per cent increase in price results in a 2 per cent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterise the product.

Question

Quizplus · Accepted Answer

Price elasticity of supply = (% change in quantity supplied / % change in price)
= (2% / 4%) = 0.5
Since the price elasticity of supply is less than 1, the product is inelastic.

Suppose a 4 Per Cent Increase in Price Results in a 2