IF THE PRICE OF AN ITEM CHANGES BY 8% AND QUANTITY SUPPLIED CHANGES FROM 600 UNITS TO 660 UNITS, THE PRICE ELASTICITY OF SUPPLY IS

• A. 0.80
• B. 1.25 ✓
• C. 2.00
• D. 10.00

 

The answer to the question is: B. 1.25

The price elasticity of supply measures the responsiveness of the quantity supplied of a good to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. The formula for price elasticity of supply (PES) is:

PES = (% Change in Quantity Supplied) / (% Change in Price)

Given that the price of an item changes by 8% and the quantity supplied changes from 600 units to 660 units, we can calculate the price elasticity of supply using the above formula.

First, we calculate the percentage change in quantity supplied:

Percentage Change in Quantity Supplied = ((New Quantity Supplied – Original Quantity Supplied) / Original Quantity Supplied) * 100

= ((660 – 600) / 600) * 100

= (60 / 600) * 100 = 10%

Next, we calculate the percentage change in price, which is given as 8%.

Now, we can use these values to calculate the price elasticity of supply:

PES = (% Change in Quantity Supplied) / (% Change in Price)

= 10% / 8% = 1.25