Question

When price of a good rises from Rs 10 to Rs 12 per unit the producer supplies 10 percent more. Calculate price elasticity of supply.

Answer 1

Given that
P₀= Rs 12, P₁ = Rs 9

Percentage change in quantity supplied =(-)75%

Change in price (ΔP)=P₁- P₀

= 9-12

= (-3)

Percentage change in price = ${\displaystyle \frac{\Delta P}{P_0}\times 100}$

${\displaystyle =\frac{(-3)}{12}\times 100=-25\%}$

${\displaystyle \text{Price elasticity of supply}\left(E_s\right)=\frac{\text{Percentage change in quantity supplied}}{\text{Percentage change in price}}}$

${\displaystyle =\frac{(-)75\%}{(-)25\%}=3}$