If a price increase of 6% led to a 4.2 percent increase in quantity supplied, then the price elasticity of supply is

Question

BlackTom AI · Accepted Answer

We start by identifying the formula for price elasticity of supply: Es = (%ΔQs) / (%ΔP).

Option A: 0.54. If Es were 0.54 with a 6% price increase, the implied %ΔQs would be 0.54 × 6% = 3.24%. Since the actual QS change is 4.2%, this option does not align with the given data.

Option B: 0.17. Using Es = 0.17 with a 6% price rise implies %ΔQs = 0.17 × 6% = 1.02%, which is far from the reported 4.2% increase in quantity supplied. This option is inconsistent with the information provided.

Option C: 0.7. Calculating Es = (%ΔQs) / (%ΔP) = 4.2% / 6% = 0.7. This directly matches the given numbers, indicating consistency between the percentage change in quantity supplied and the percentage change in price.

Option D: 1.0. If Es were 1, the implied %ΔQs would be 6%, which is not equal to the observed 4.2% increase. Therefore, this option misstates the relationship between price and quantity supplied in this scenario.

In summary, the only option that coherently corresponds to a 4.2% change in QS resulting from a 6% price increase is the one yielding an elasticity of 0.7, as shown by the calculation 4.2 / 6 = 0.7.

If a price increase of 6% led to a 4.2 percent increase in quantity supplied, then the price elasticity of supply is

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