Question

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

a. 1.5% in the short run and 6% in the long run.
b. 16.7% in the short run and 4.2% in the long run.
c. 6% in the short run and 1.5% in the long run.
d. 4.2% in the short run and 16.7% in the long run.

Answer 1

a. 1.5% in the short run and 6% in the long run

Step-by-step explanation:

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

In the short run, the percentage change in quantity supplied = 0.3 = the percentage change in quantity supplied / 5% = 1.5%

In the long run : 1.2 = the percentage change in quantity supplied / 5% = 6%

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