When price of a good falls from Rs 12 per unit to rs 9 per unit, the producer supplies 75% less output. Calculate price elasticity of supply.
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 3
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]
Percentage change in quantity supplied = -75%
Percentage change in price = (-3/12)*100 = -25%
$e_s$ = -75%/-25% =3