Question

A fall in price of a firm’s product results in a fall in its supply by 40 per cer cent. Its price elasticity of supply is 1.6. Calculate the percentage fall in its price.

Answer 1

% Change in Quantity Supplied = −40%

Price Elasticity of Supply (E_s) = 1.6

% Change in Price = Let this be X

Es = `("% Change in Quantity Supplied")/("% Change in Price")`

1.6 = `(-40%)/X`

X = `(-40%)/1.6`

Remove the decimal by multiplying the top and bottom by 10:

X = `(-400)/16`

X = −25%

The percentage change in price is −25%.