Show work. Self Check: Price Elasticity of Demand and Price Elasticity of Supply
ID: 1138473 • Letter: S
Question
Show work.Self Check: Price Elasticity of Demand and Price Elasticity of Supply Question 1/3 The supplier of a computer game is willing to supply 2,500 units at $50 each, but is willing to supply 3,500 units at $60. Calculate the Price Elasticity of Supply rounded to two decimal places. Which statements are correct? if the price increases 10%, supply will increase 10%. The supply is elastic. o The demand is inelastic. If the price increases 10%, supply will decrease 18.3%. If the price increases 10%, supply will increase 18.3% NEXT or Skip Question
Explanation / Answer
The supplier of a computer game is willing to supply 2500 units at $50 each, but is willing to supply 3500 units at $60.
It means
P = $50
Q = 2500
new P = $60
new Q = 3500
Change in P = new P - P = 60 - 50 = $10
Change in Q = new Q - Q = 3500 - 2500 =1000
To calculate the price elasticity of supply, use formula
es = % change in quantity supplied / % change in price
% change in quantity suppied = (Change in Q / Q)*100 = (1000/2500)* 100 = 40%
% change in price = (change in P / P)*100 = (10/50)*100 = 20%
es = 40% / 20% = 2
It means if price increases by 10%, quantity supplied will increase by 20%
so only one option is correct tat the suppy is elastic.
As the elasticity of suplpy es is greater than 1 (2>1), The supply is elastic.
So correct ans is B).
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