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10. When the price of a commodity changes from 4 per unit to 5 per unit, its market supply rises from 100 unitsto 120 units. Calculate the price elasticity of demand. Issupply elastic ? Give reason. |
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Answer» Price elasticity of supply = % CHANGE in quantity supplied / % change in priceTherefore, Price elasticity of supply= ((120-100)/(120+100))*( (5-4)/(5+4)) = 0.80Since, price elasticity of supply is less than 1, supply of this COMMODITY is inelastic. This means that a SHIFT in price won't DRASTICALLY affect the supply of the commodity.Explanation: |
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