Question

Suppose that the price of product x rises by 20 percent and the quantity supplied of x increases by 15 percent. The coefficient of price elasticity of supply for good x is

Answer 1

Answer: Coefficient of elasticity of supply is 0.75.

Explanation:

Price elasticity of supply measures the responsiveness of quantity supplied to a change in the price of the good. It can be measured using the percentage point method,

$e_{s} = \frac{Percentage change in Quantity supplied}{Percentage change in price}$

$=\frac{15}{20}$

$=0.75$

Therefore, coefficient of elasticity of supply is 0.75. Since it is less than 1 we can infer that supply for this good is relatively inelastic.