Suppose that in a month the price of a liter of soda increases from $1 to $1.50. At the same time, the quantity of liters of soda supplied increases from 200 to 210. The price elasticity of supply for liters of soda (calculated using the initial value formula) is
A) negative.
B) inelastic.
C) unit elastic.
D) elastic.

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 (210-200)/200 = 0.05 or 5%, and the percentage change in price is (1.50-1.00)/1.00 = 0.50 or 50%. The elasticity is 5%/50% = 0.1, which is less than 1, indicating that the supply is inelastic.

Suppose That in a Month the Price of a Liter