Question

As a result of fall in the price of a commodity from ₹ 6 per unit to ₹ 5 per unit, the quantity supplied falls by 25 percent. Calculate its price elasticity of supply.

Answer 1

`e_s = "Proportionate Change in Quantity Supplied"/ "Proportionate Change in Price"`

Change in price = 6 − 5

= ₹ 1 %

Percentage change in price = `1/6 xx 100`

= 16.67

`e_s = 25/16.67`

≈ 1.5

Price Elasticity of Supply ≈ 1.5

Since E_S > 1, the supply is elastic.