Question

When price of a good falls from Rs 20 to Rs 10 per unit, producer reduces supply from 100 units to 50 units. Calculate price elasticity of supply.

Answer 1

Given that
Q₀ = 100 units and Q1 = 50 units

P₀ = Rs 20 and P₁ =Rs 10

ΔP = P₁ - P₀

ΔP=10-20=-10

ΔQ = Q₁ - Q₀

ΔQ = 50 - 100=-50 units

We know that

`E_s = (DeltaQ)/(DeltaP)xxP_0/Q_0`

`=(-50)/-10xx20/100`

`=5xx1/5=1`