Question

The price elasticity of gasoline supply in the U.S is 0.4. If the price of gasoline rises by 8% , what is the expected change in the quantity of gasoline supplied in the U.S?

Answer 1

1.By definition price elasticity of supply is % change in quantity supplied divided by % change in  price:

$E=\frac{\Delta Q}{\Delta P}$

where $\Delta Q$ - change in quantity supplied measured in percents,

$\Delta P$ - change in price measured in percents.

2.This means that expected change in quantity of gasoline supplied in U.S.can be calculated as:

$\Delta Q=E*{\Delta P} =0.4*8=3.2$ %

Quantity of gasoline supplied in U.S.is expected to increse by 3.2%.