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Question
A 10 per cent increase in price of a good causes 5 per cent increase in its quantity supplied, elasticity of supply will be ______.
Options
Inelastic
Elastic
Perfectly elastic
Perfectly inelastic
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Solution
A 10 per cent increase in price of a good causes 5 per cent increase in its quantity supplied, elasticity of supply will be inelastic.
Explanation:
Elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price.
Elasticity of Supply (Es) = `("Percentage change in quantity supplied")/("Percentage change in price")`
Es = `(5%)/(10%)` = 0.5
Since the elasticity of supply is less than 1 (Es = 0.5), the supply is considered inelastic.
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