Assume the price of widgets increases by 22 percent and the quantity supplied increases by 27 percent as a result. The elasticity of supply coefficient is:
A)greater than 1, implying that widgets are normal goods.
B)less than 1, implying that widgets are inferior goods.
C)greater than 1, implying that supply is elastic.
D)greater than 1, implying that supply is inelastic.

Question

Assume the price of widgets increases by 22 percent and the quantity supplied increases by 27 percent as a result. The elasticity of supply coefficient is:
A)​greater than 1, implying that widgets are normal goods.
B)​less than 1, implying that widgets are inferior goods.
C)​greater than 1, implying that supply is elastic.
D)​greater than 1, implying that supply is inelastic.

Quizplus · Accepted Answer

The elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the coefficient would be (27%/22%) = 1.23, which is greater than 1. This indicates that supply is elastic, meaning that a small change in price results in a proportionally larger change in quantity supplied.

Assume the Price of Widgets Increases by 22 Percent and the Quantity