Question

If a rise in the price of oranges from $7 to $9 a bushel, caused by a shift of the demand curve, increases the quantity of bushels supplied from 4,500 to 5,500 bushels, the A. demand for oranges is elastic. B. supply of oranges is elastic. C. demand for oranges is inelastic. D. supply of oranges is inelastic.

Answer 1

Answer:

Option (D) is correct.

Explanation:

Initial price = $7

Initial quantity supplied = 4,500

New price = $9

New quantity supplied = 5,500

Percentage change in Quantity supplied:

= (Change in quantity supplied ÷ Initial quantity supplied) × 100

= [(5,500 - 4,500) ÷ 4,500] × 100

= (1,000 ÷ 4,500) × 100

= 0.22 × 100

= 22%

Percentage change in price:

= (Change in price ÷ Initial price) × 100

= [($9 - $7) ÷ $7] × 100

= ($2 ÷ $7) × 100

= 0.2857 × 100

= 28.57%

Therefore, the price elasticity of supply is as follows:

= Percentage change in quantity supplied ÷ Percentage change in price

= 22 ÷ 28.57

= 0.77

Hence, the price elasticity of supply of oranges is inelastic, since it is less than 1.