The price of peanut butter decreases. As a result, the price of jelly (a complement to peanut butter) rises by 5 percent and the quantity of jelly sold rises by 10 percent. What can we conclude from this information?
A) The cross-price elasticity between peanut butter and jelly equals 0.5.
B) The elasticity of demand equals 2.0.
C) The elasticity of supply equals 2.0.
D) The cross-price elasticity between peanut butter and jelly equals 2.0.

Question

Quizplus · Accepted Answer

The elasticity of supply can be calculated as the percentage change in quantity supplied divided by the percentage change in price, which is 10% / 5% = 2.0.

The Price of Peanut Butter Decreases