Question

When the price of a commodity changes from Rs 4 per unit to Rs 5 per unit, its market supply rises from 100 units to 120 units. Calculate the price elasticity of supply. Is supply elastic? Given reason

Answer 1

Given that

Price (P)	Quantity (Q)
P0 = 4	Q0 = 100
P1 = 5	Q1 = 120

`E_S = ((Q_1-Q_0)/Q_0 xx 100)/((P_1-P_0)/P_0 xx 100)`

`=> E_S = ((120 - 100)/100 xx 100)/((5-4)/4 xx 100) = 0.8` 

`:. E_S < 1`

Therefore, elasticity of supply is inelastic.