Question

If the price elasticity of supply is 0.4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about a. 0.25%. b. 1.2%. c. 2%. d. 12.5%.

Answer 1

d. 12.5%.

Step-by-step explanation:

Price elasticity of supply measures the degree of responsiveness of quantity supplied to changes in price.

If the price elascitiy of supply is 0.4, it indicates that supply is inelastic. This means that a change in price has little effect on quantity supplied.

Price elasticity of supply = percentage change in quantity supplied / percentage change in price

0.4 = 5% / percentage change in price

percentage change in price = 12.5%

I hope my answer helps you.