Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run.If an increase in the demand for minivans causes the price of minivans to increase by 5%,then the quantity supplied of minivans will increase by about
A)1.5% in the short run and 6% in the long run.
B)6% in the short run and 1.5% in the long run.
C)16.7% in the short run and 4.2% in the long run.
D)4.2% in the short run and 16.7% in the long run.

Question

Quizplus · Accepted Answer

The price elasticity of supply measures the percentage change in quantity supplied in response to a percentage change in price. In the short run, the price elasticity of supply is 0.3, which means that a 5% increase in price will lead to a 1.5% increase in quantity supplied. In the long run, the price elasticity of supply is 1.2, which means that a 5% increase in price will lead to a 6% increase in quantity supplied.

Suppose the Price Elasticity of Supply for Minivans Is 0