Question

Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the quantity supplied of good Y will


decrease by 60 percent

Option A,decrease by 60 percent

a

decrease by 30 percent

Option B,decrease by 30 percent

b

decrease by 15 percent

Option C,decrease by 15 percent

c

increase by 0.5 percent

Option D,increase by 0.5 percent

d

increase by 0.15 percent

Answer 1

Elasticity of supply = %ΔQ / %ΔP. So %ΔQ = elasticity × %ΔP = 0.5 × (−30%) = −15%.

Quantity supplied will decrease by 15% (Option C).