If the price elasticity of supply is 1.2,and price increased by 5%,quantity supplied would
A)increase by 4.2%.
B)increase by 6%.
C)decrease by 4.2%.
D)decrease by 6%.

Question

Quizplus · Accepted Answer

The formula for price elasticity of supply (PES) is:

PES = (% change in quantity supplied) / (% change in price)

We are given that PES = 1.2 and % change in price = 5%. Solving for the % change in quantity supplied:

1.2 = (% change in quantity supplied) / 5%
% change in quantity supplied = 1.2 x 5% = 6%

Therefore, if the price increased by 5%, the quantity supplied would increase by 6%. The correct answer is B.

If the Price Elasticity of Supply Is 1