Question

When price of a commodity fall by 20%, the quantity supplied decreases by 25%. Find out its price elasticity of supply.

Answer 1

% Change in Quantity Supplied = −25% (decreases)

% Change in Price = −20% (fall)

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

= `(-25%)/(-20%)`

= `25/20`

= 1.25

The price elasticity of supply is 1.25.