Suppose a decrease in world demand for potash (used in the production of fertilizer)decreases the price from $400 per tonne to $240 per tonne.Annual Canadian production decreases from 12 million tonnes to 8 million tonnes.What is the elasticity of supply of Canadian potash?
A)0.4
B)0.8
C)0.75
D)1.0
E)1.25

Question

Quizplus · Accepted Answer

The elasticity of supply is calculated using the formula: (percentage change in quantity supplied) / (percentage change in price). The percentage change in quantity is ((8-12)/12)*100 = -33.33%, and the percentage change in price is ((240-400)/400)*100 = -40%. Elasticity = (-33.33%)/(-40%) = 0.833, which rounds to 0.8.

Suppose a Decrease in World Demand for Potash (Used in the Production