Suppose that the price elasticity of supply is 0.8 and the price increases by 10%. We would predict
A) an 8% increase in quantity supplied.
B) a 12.5% increase in quantity supplied.
C) a 0.8% increase in quantity supplied.
D) a 1.25% increase in quantity supplied.

Question

Quizplus · Accepted Answer

Price elasticity of supply measures the responsiveness of quantity supplied to changes in price. A price elasticity of supply of 0.8 indicates that a 1% increase in price will lead to an 0.8% increase in quantity supplied. Therefore, a 10% increase in price would result in an 8% increase in quantity supplied (10% x 0.8) according to the formula: % change in quantity supplied = price elasticity of supply x % change in price.

Suppose That the Price Elasticity of Supply Is 0