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12 February, 13:00

If the price elasticity of supply is 0.6, and a price increase led to a 3.7 percent increase in quantity supplied, then the price increase is about a. 5.17 percent. b. 2.22 percent. c. 6.17 percent. d. 0.16 percent

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  1. 12 February, 13:26
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    Answer: The price increase is about 6.17 percent.

    Explanation:

    The price elasticity of supply (PES) is the elasticity of the quantity supplied of a product to its price change. Price elasticity of supply is the ratio of the percentage change in the quantity supplied of a good or service to the percentage change in price.

    The Price Elasticity of Supply is positive as a result of the law of supply that states that there's a direct relationship between the quantity supplied and price i. e. a price increase leads to an increase in quantity supplied and vice versa.

    To solve the question,

    PES = 0.6

    % change in quantity supplied = 3.7

    % change in price = Unknown

    Let percentage change in price be denoted by b.

    PES = % change in quantity demanded / % change in price

    0.6 = 3.7 / b

    Cross multiplying,

    b = 3.7 / 0.6

    b = 6.17

    Recall that b is the percentage change on price.

    Therefore, the percentage change in price is 6.17.
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Home » Business » If the price elasticity of supply is 0.6, and a price increase led to a 3.7 percent increase in quantity supplied, then the price increase is about a. 5.17 percent. b. 2.22 percent. c. 6.17 percent. d. 0.16 percent
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