Question

When price of a commodity falls from Rs 12 per unit to Rs 9 per unit, the producer supplies 75 percent less output. Calculate price elasticity of supply.

Answer 1

 

Given that

P₀ = Rs 12, P = Rs 9

Percentage change in quantity supplied =(-)75%

Change in price (ΔP)= P₁ - P₀

                            = 9-12

                            = (-3)

Percentage change in price = (ΔP/P₀) x 100

                                        = (-3)/12 x 100

                                        = -25%

`"Price elasticity of supply" (E_s)="Percentage change in quantity supplied"/"Percentage change in price"`

                                            `=(-75%)/(-25%)=3`