If the price elasticity of supply is 1.5,and a price increase led to a 1.8% increase in quantity supplied,then the price increase is about
A)0.67%.
B)0.83%.
C)1.20%.
D)2.70%.

Question

Quizplus · Accepted Answer

Using the formula for elasticity of supply:
Elasticity of Supply = (% change in quantity supplied) / (% change in price)

We are given that:
Elasticity of Supply = 1.5
% change in quantity supplied = 1.8%

We need to find the % change in price which caused this increase, let's call it x.

Using algebra:
1.5 = 1.8 / x
x = 1.2

Therefore, the % change in price is 1.2% or 0.012, which is closest to option C (1.20%).

If the Price Elasticity of Supply Is 1