Price rises from $100 to $200 and quantity supplied rises from 200 units to 600 units. PES is _____________.

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BlackTom AI · Accepted Answer

We begin by identifying the changes in price and quantity supplied: Price rises from 100 to 200, so ΔP = 200 − 100 = 100. Quantity supplied rises from 200 to 600, so ΔQs = 600 − 200 = 400.

Next, compute percentage changes relative to the initial values: Percentage change in price = (ΔP / P_initial) × 100 = (100 / 100) × 100 = 100%. Percentage change in quantity supplied = (ΔQs / Qs_initial) × 100 = (400 / 200) × 100 = 200%.

Price Elasticity of Supply (PES) is defined as PES = (percentage change in quantity supplied) / (percentage change in price) = 200% / 100% = 2.0.

Now evaluate each option:
- Option a: +1. This would imply PES = 1, which would occur if the quantity supplied and price changed by the same percentage. Here, the quantity change (200%) is double the price change (100%), so +1 is not correct.
- Option b: +1.5. This would require a 150% quantity change for a 100% price change. Our calculation shows a 200% quantity change, not 150%, so this is inaccurate.
- Option c: +0.5. This would indicate that the quantity responds only half as much as the price change (50% vs 100%). Since the quantity change is actually larger (200%), this is incorrect.
- Option d: +2. This corresponds to a 200% quantity change with a 100% price change, yielding PES = 2.0. This matches the computed values exactly, and therefore aligns with the standard PES formula.

In sum, the core idea is comparing how much quantity supplied responds relative to the price movement, and here the quantity response is twice the price movement, giving PES of 2.0. The mismatches in options a, b, and c stem from under- or overestimating the percentage response or misapprehending the base values for percentage calculations.

Price Elasticity of Demand and Supply Quiz

Price rises from $100 to $200 and quantity supplied rises from 200 units to 600 units. PES is _____________.

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