Suppose that when price of a good is $10,quantity supplied is 20 and when price is $6,quantity supplied is 12.The price elasticity of supply is:
A)0.5.
B)0.8.
C)1.
D)1.5.
E)2.

Question

Quizplus · Accepted Answer

Elasticity of supply is defined as the percentage change in quantity supplied in response to a percentage change in price. Using the midpoint formula, the price elasticity of supply can be calculated as:

Price Elasticity of Supply = [(Change in Quantity Supplied)/((Average Quantity Supplied)/2)] / [(Change in Price)/((Average Price)/2)]

Here, the change in price is $10 - $6 = $4 and the change in quantity supplied is 20 - 12 = 8.

Therefore, the average quantity supplied is (20+12)/2 = 16 and the average price is ($10+$6)/2 = $8.

Plugging in these values, we get:

Price Elasticity of Supply = [(8/16) / (4/$8)] = 1

Hence, the correct answer is C) 1. This means that the quantity supplied is increasing at the same proportion as the change in price.

Suppose That When Price of a Good Is $10,quantity Supplied