If an increase in the price of oil from $20 to $24 per barrel induces firms to increase production from 1 million to 1.6 million barrels,then the elasticity of supply is:

Question

Quizplus · Accepted Answer

To calculate the elasticity of supply, we use the formula:

Elasticity of Supply = (Percent change in quantity supplied) / (Percent change in price)

Using the information given in the question, we can calculate:

Percent change in quantity supplied = ((1.6 million - 1 million) / 1 million) x 100% = 60%
Percent change in price = (($24 - $20) / $20) x 100% = 20%

Therefore, the elasticity of supply is:

Elasticity of Supply = (60% / 20%) = 3

So, the correct answer is B.

If an Increase in the Price of Oil from $20