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22 October, 14:36

Assume Qd=10-2p and Qs=p what is the elasticity of Supply if price increases from $1 to $3?

(a) Unit elastic

(b) Inelastic

(c) Elastic

(d) Not enough information is available to answer this question

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Answers (1)
  1. 22 October, 17:59
    0
    A. unit elastic

    Explanation:

    The price elasticity of supply can be calculated by a formula as below:

    +) Price elasticity of supply = Changes in supplied quantity / Changes in prices = (%ΔQs) / (%ΔP)

    When price = $1, the quantity supplied is: Qs = p = 1

    When price = $3, the quantity supplied is: Qs = p = 3

    So that when price increases from $1 to $3, the quantity supplied changes from 1 to 3.

    => Changes in supplied quantity is: 3 - 1 = 2

    Changes in price is: $3 - $1 = $2

    => Price elasticity of supply = 2/2 = 1

    When the price elasticity of supply is equal exactly to 1, the product is considered to be unit - elastic.

    So that A is the true answer.
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