Suppose that in a month the price of movie rentals increases from $2 to $2.20. At the same time, the quantity of movie rentals supplied increases from 100 to 110. The price elasticity of supply for movie rentals (calculated using the initial value formula) is
A) 0.02.
B) 0.2.
C) 1.
D) 50.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity supplied is (110-100)/100 = 0.1, and the percentage change in price is (2.20-2)/2 = 0.1. Therefore, the elasticity is 0.1/0.1 = 1.

Suppose That in a Month the Price of Movie Rentals