Question

1) Suppose that the elasticity of supply for wheat is 0.3 and for magazines is 1.3.

a. If the price of wheat rises 10%, what is the increase in quantity of wheat supplied?

b. If the price of of a magazine rises 10%, what is the increase in quantity of magazine supplied?

c. Which good does the quantity supplied respon more strongly, wheat or magazines?

Answer 1

$\text{a.\, E.S}=\dfrac{\Delta Q_s}{\Delta P}\\ \text{substituting for E.S and Change in Price}\\ \text{we have;}\\ 0.3=\dfrac{\Delta Q_s}{10}\\ \text{Cross multiplying, we have;}\\ \Delta Q_S=0.3*10\\ \Delta Q_S=3\\ \text{b.\, E.S}=\dfrac{\Delta Q_s}{\Delta P}\\ \text{Substituting for E.S and change in price,}\\ \text{we have;}\\ 1.3=\dfrac{\Delta Q_s}{10}\\ \text{cross multiplying, we have;}\\ \Delta Q_S=1.3*10\\ \Delta Q_s=13\\ \text{c.\ Magazine responds more strongly to supply.}\\ \text{Magazine has a more elastic supply than Wheat.}\\ \text{Note: E.S means Elasticity of supply}\\ \Delta Q_s\ \text{means change in quantity supplied}\\ \Delta P\ \text{means change in price}\\ \Delta P\ \text{means change in price}$