<em>The correct answer is: 2. </em>Green tea is inelastic in terms of supply.
The elasticity of the supply of a product measures the variation experienced by the quantities of products supplied by the producers before variations in certain factors of production. In our case, the established factor is the market price of the goods to be produced (green tea), and is called the price elasticity of the offer.
The price elasticity of the supply of a product is calculated as the quotient between the differences in the quantity offered to the market by the producers and the differences in the market price of that product.
In this case, the price elasticity of green tea is 67%. The calculation is done as follows:
<em> E (%) = (S2-S1) / (P2-P1) = (5-3) / (7-4) = 2/3 = 67%
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As this value is less than unity, it is said that the green tea is Inelastic in terms of supplies with respect to the market price.
This means that before increases in the price the quantities supplied by the producers increase in a smaller proportion.
