At a price of 8 per unit, the quantity supplied of a commodity is 200 units. Its price elasticity of supply is 1.5. If its price rises to 10 per unit, calculate the quantity supplied at the new price?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 275 units
We are given:
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Initial price (P₁) = ₹8
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New price (P₂) = ₹10
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Initial quantity supplied (Q₁) = 200 units
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Elasticity of supply (Eₛ) = 1.5
% change in price= [(10 - 8)/ 8] * 100 = 25%
We use the price elasticity of supply formula:
Es = % change in quantity supplied / % change in price
1.5 = % change in quantity supplied / 25
% change in quantity supplied= 25 * 1.5 = 37.5 %
Increase in quantity=37.5% of 200 = 75
New quantity supplied=200+75=275 units