When the price of a good is Rs 4 per unit, a producer supplies 8 units a day. If price rises to rs 5 per unit, he is willing to supply 10 units a day. Calculate price elasticity of supply.
Answer & explanation
Correct answer: option 2
The correct answer is Option 2:1
Price elasticity of supply ($e_s$)= Percentage change in quantity supplied /Percentage change in price
= [△Q/Q] * [P/△P]
Change in Price = 1 (5-4)
Change in Quantity = 2 (10-8)
$e_s$ =(2/1) * 4/8
= 1