Suppose that the price elasticity of supply is 0.5 and the price increases by 4%. We would predict
A) an 8% increase in quantity supplied.
B) a 2% increase in quantity supplied.
C) a 0.8% increase in quantity supplied.
D) a 0.2% increase in quantity supplied.

Question

Quizplus · Accepted Answer

The formula for calculating the percentage change in quantity supplied is:
percentage change in quantity supplied = (elasticity of supply) x (percentage change in price)

Using the given values, we get:
percentage change in quantity supplied = 0.5 x 4% = 2%

Therefore, the predicted increase in quantity supplied is 2%. The correct choice is B.

Suppose That the Price Elasticity of Supply Is 0