If price of a commodity rises from Rs. 10 to Rs. 15, its supply increases by 20%. Calculate the price elasticity of supply for this commodity.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 0.4
Es=Percentage change in quantity supplied/ Percentage change in price
Percentage change in quantity supplied = 20%
Percentage change in price =[ Change in Price / Initial Price] *100
= [(15 - 10 ) /10] * 100
= 50 %
Es= 20% / 50% =0.4