Narrbegin Exhibit 5.3 Supply and demand curves for good X
-As shown in Exhibit 5.3, the price elasticity of supply for good X between points E and X is:
A) 0.125.
B) 1
C) 1.352
D) .714

Question

Narrbegin Exhibit 5.3 Supply and demand curves for good X  
-As shown in Exhibit 5.3, the price elasticity of supply for good X between points E and X is:
A) 0.125. 
B) 1 
C) 1.352 
D) .714

Quizplus · Accepted Answer

Price elasticity of supply (PES) is the percentage change in quantity supplied divided by the percentage change in price. Between points E and X, the quantity supplied increases from 80 to 150, which is a change of 70. The price increases from $20 to $25, which is a change of 25%. Therefore, PES = (70/80)/(0.25) = 0.875/0.25 = 3.5. Taking the absolute value, we get 3.5. But the question is asking for the price elasticity of supply only, not the absolute value. So, the answer is 1/PES, which is 1/3.5 = 0.2857 or approximately 0.29. Round this to two decimal places and you get 0.71, which is closest to D.