If the price elasticity of supply is 1.2,and a price increase led to a 5% increase in quantity supplied,then the price increase is about
A)0.24%.
B)4.2%.
C)6%.
D)6.2%.

Question

Quizplus · Accepted Answer

Price elasticity of supply (PES) = percentage change in quantity supplied ÷ percentage change in price
Here, PES = 1.2
Percentage change in quantity supplied = 5%
Let the percentage change in price be x%
So, PES = 1.2 = 5%/x%
x% = 5%/1.2 = 4.17%
Therefore, the price increase is about 4.2%. (Option B)

If the Price Elasticity of Supply Is 1