The price elasticity of supply of a commodity is 2.5. At a price of Rs.5 per unit, its quantity supplied is 300 units. What will be its quantity supplied at a price of Rs.4 per unit?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 150 Units.
Price elasticity of supply ($e_s$)= Percentage change in quantity supplied /Percentage change in price
= [(Q2- Q1/Q1)]/[(P1/P2 - P1)]
We are given:
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Price elasticity of supply (Es) = 2.5
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Initial price (P₁) = Rs. 5
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New price (P₂) = Rs. 4
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Initial quantity supplied (Q₁) = 300 units
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We need to find new quantity supplied (Q₂)
2.5 = [(Q2- 300/300)]/[(5/4-5)]
2.5 = [(Q2- 300/300)] /(-1/5)
2.5 = [(Q2- 300/300)] * -5
2.5 * 300 = - 5 (Q2- 300)
750/5 = - (Q2- 300)
-150 = Q2- 300
Q2= 300-150 = 150