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Question
When the price of a commodity changes from Rs 4 per unit to Rs 5 per unit, its market supply rises from 100 units to 120 units. Calculate the price elasticity of supply. Is supply elastic? Given reason
Solution
Given that
| Price (P) | Quantity (Q) |
| P0 = 4 | Q0 = 100 |
| P1 = 5 | Q1 = 120 |
`E_S = ((Q_1-Q_0)/Q_0 xx 100)/((P_1-P_0)/P_0 xx 100)`
`=> E_S = ((120 - 100)/100 xx 100)/((5-4)/4 xx 100) = 0.8`
`:. E_S < 1`
Therefore, elasticity of supply is inelastic.
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