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Question
The price elasticity of supply of a good is 0.8. Its price rises by 50 percent. Calculate the percentage increase in its supply.
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Solution
% Change in Quantity Supplied = 50%
Price Elasticity of Supply (Es) = 0.8
% Change in Price = Let this be X
Es = `("% Change in Quantity Supplied")/("% Change in Price")`
0.8 = `X/50%`
X = 0.8 × 50 %
X = 40%
The percentage change in Quantity Supplied is 40%.
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