The price elasticity of supply is 6. This means that
A) a $10 increase in price would increase quantity supplied by 60.
B) a 10 percent increase in price would increase quantity supplied by 60 percent.
C) a 10 percent increase in quantity will occur when price increases by 0.6 percent.
D) a 10 percent increase in quantity will occur when price increases by 6 percent.

Question

Quizplus · Accepted Answer

The price elasticity of supply formula is (% change in quantity supplied / % change in price). A value of 6 means that for a 10 percent increase in price, there would be a 60 percent increase in quantity supplied. Therefore, option B is correct. Option A is incorrect as it calculates the increase in quantity supplied using a fixed dollar amount instead of a percentage increase. Option C and D are incorrect as they use the opposite relationship between the percentage change in quantity and price than what is implied by a price elasticity value of 6.

The Price Elasticity of Supply Is 6