Question

If the value of the price elasticity of supply is 3, which of the following is true?


Supply is inelastic.

Option A,Supply is inelastic.

a

A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.

Option B,A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.

b

The supply curve is downward sloping with respect to the price of output.

Option C,The supply curve is downward sloping with respect to the price of output.

c

A 10 percent decrease in price will decrease the quantity supplied by 30 percent.

Option D,A 10 percent decrease in price will decrease the quantity supplied by 30 percent.

d

A 3 percent increase in price will decrease the quantity supplied by 10 percent.

Answer 1

Correct answer: Option D.

Reason: Price elasticity of supply = %ΔQ / %ΔP = 3, so %ΔQ = 3 × %ΔP. A 10% decrease in price (%ΔP = −10%) implies %ΔQ = 3 × (−10%) = −30% (quantity supplied falls by 30%). The other statements are false (supply is elastic, not inelastic; %ΔQ is larger than %ΔP, not smaller; supply slopes upward, not downward).