Question

Because price and quantity supplied are directly​ related, we would expect the sign of the price elasticity of supply to be:_________

Answer 1

Answer:

Positive

Explanation:

Price elasticity is the measure to assess the responsiveness of the supply of a good or service after changing the price of the good or service.

According to basic principles of economics, the price and supply of good or services are directly proportional, it means that if the price increases the supply of good increases and vice versa. The sign of the price elasticity will be positive because they are directly related.

Form example

At Price $5 supply is 200 units

At price $6 supply 250 units

Calculate the change in price and change in supply as well.

Cange in price = ($6 - $5) / 5 = 0.2 = 20%

Cange in supply = 250 units - 200 units = 50 units / 200 unit = 0.25 = 25%

Price elasticity of supply = Change in supply / Change in price

Price elasticity of supply = 25% / 20%

Price elasticity of supply = 1.25

Hence, the sign is positive