What is the formula of Price elasticity of supply?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Percentage change in quantity supplied /Percentage change in price
Price elasticity of supply, $e_s$ = Percentage change in quantity supplied /Percentage change in price
= [(△Q/Q)*100]/[(P/△P)*100]
= [△Q/Q] * [P/△P]
Why Option 2 is Incorrect?
It says:
(Change in Quantity/100) /(Change in Price/100)
On simplification we get - △Q/△P, which is simply the slope of the supply curve, not the elasticity — because elasticity requires percentage change, which involves dividing by the original values as well.