Question

Assume Qd=10-2p and Qs=p what is the elasticity of Supply if price increases from $1 to $3?

Answer 1

Answer:

A. unit elastic

Explanation:

The price elasticity of supply can be calculated by a formula as below:

+) Price elasticity of supply = Changes in supplied quantity/ Changes in prices                                           = (%ΔQs)/(%ΔP)

When price = $1, the quantity supplied is: Qs = p = 1

When price = $3, the quantity supplied is: Qs = p = 3

So that when price increases from $1 to $3, the quantity supplied changes from 1 to 3.

=> Changes in supplied quantity is: 3 -1 = 2

Changes in price is: $3 - $1 = $2

=> Price elasticity of supply = 2/2 =1

When the price elasticity of supply is equal exactly to 1, the product is considered to be unit - elastic.

So that A is the true answer.