Suppose that the percentage change in demand is 10%, the price elasticity of demand is 1, and the percentage change in the equilibrium price is 3.33%. What is the price elasticity of supply?
A) 0
B) 1
C) 2
D) 3

Question

Quizplus · Accepted Answer

Using the formula for price elasticity of demand, we can find the percentage change in price:
% change in quantity demanded = price elasticity of demand x % change in price
10% = 1 x % change in price
% change in price = 10%
If the percentage change in equilibrium price is 3.33%, we can find the price elasticity of supply using the formula:
price elasticity of supply = % change in quantity supplied / % change in price
price elasticity of supply = 10% / 3.33%
price elasticity of supply = 3
Therefore, the answer is C) 2 is not correct.

Suppose That the Percentage Change in Demand Is 10%, the Price