Question

If the price of a commodity falls from ₹ 60 per unit to ₹ 58 per unit, its supply contracts from 400 units to 300 units. Find out its elasticity of supply.

Answer 1

Initial Price (P) = ₹ 60

New Price (P₁) = ₹ 58

Change in Price (ΔP) = 58 − 60 = −2

Initial Quantity Supplied (Q) = 400 units

New Quantity Supplied (Q₁) = 300 units

Change in Quantity Supplied (ΔQ) = 300 − 400 = −100 units

E_s = `(ΔQ)/(ΔP) xx P/Q`

= `(-100)/(-2) xx 60/400`

= `100/2 xx 6/40`

= 50 × 0.15

= 7.5

The price elasticity of supply is 7.5