Q118
If price changes by 1% and supply changes by 2%, then supply is
A.
Elastic
AnswerB.
Inelastic
C.
Indeterminate
D.
Static
Answer: Option A
Solution
Answer: Option A
Solution:
If price changes by 1% and supply changes by 2%, then supply is Elastic. The Price Elasticity of Supply (PES) for elastic and inelastic supply would be different. The PES for elastic supply would be greater than 1. This tells us that if prices were to increase (or decrease) by 1%, the quantity supplied would increase (or decrease) in a number greater than 1%.