Question

6. If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

Answer 1

Answer:

Price increase is about 4.2%

Explanation:

Price Elasticity of Supply (PES) is a measure of the responsiveness of the quantity of a particular good/service supplied to a change in price.

The price elasticity of supply is mathematically the ratio of the percentage change in quantity supplied to the percentage change in price.

$PES = \frac{\%\ change\ in\ quantity}{\%\ change\ in\ price} \\where\\PES= 1.2\\\% change\ in\ quantity = 5\%\\\%\ change\ in\ price = ???\\\therefore 1.2 = \frac{5}{\%\ change\ in\ price}\\ \%\ change\ in\ price = \frac{5}{1.2} \\\%\ change\ in\ price = 4.16\%$