Suppose that the price elasticity of supply is one and the quantity supplied increases by 5%. Other things being equal, the percentage change in the price should be
A) a 0.5% increase in the price.
B) a 5% increase in the price.
C) a 0.2% increase in the price.
D) a 2% increase in the price.

Question

Quizplus · Accepted Answer

According to the formula for price elasticity of supply, percentage change in quantity supplied divided by percentage change in price equals one. Therefore, a 5% increase in quantity supplied will result in a 5% increase in price, making option B the correct answer.

Suppose That the Price Elasticity of Supply Is One and the Quantity