Answer to Question #186568 in Microeconomics for stnrlynintsh

Question

with a 10% increase in the price of a dairy products , the number of units supply rises from 20 to 25 . Determine the price elasticity of supply . state whether the supply for the product is elastic or inelastic .

Answer 1

Percentage increase in the price of goods = 10%

Percentage change in quantity supplied is given as:

$\frac{{P_1-P_0}}{P_0}×100$

Where $P_0$ is the old price and $P_1$ is the new price

Therefore percentage change in quantity supplied

= $\frac{25-20}{20}×100$

=25%

E= (%change in quantity supplied)/(% change in price)

$E=\frac{0.1}{0.25}$

E= 0.4

The supply is inelastic