Question

Statement (1): The coefficient of price elasticity of supply 2 shows that when price changes by 2%, supply also changes by 2%.

Statement (2): E_s = 1.8 signifies that supply is elastic.

Options

• Statement 1 is true and Statement 2 is false.

• Statement 2 is true and Statement 1 is false.

• Both statements are true.

• Both statements are false.

Answer 1

Statement 2 is true and Statement 1 is false.

Explanation:

• Statement (1): A coefficient of price elasticity of supply (E_s) of 2 indicates that the percentage change in quantity supplied is twice the percentage change in price. As a result, if the price rises by 2%, the supply changes by 4% rather than 2%.
• Statement (2): When the coefficient of elasticity is greater than one (E_s > 1), the supply is classified as elastic. Since 1.8 is greater than 1, it accurately represents elastic supply.