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20 May, 20:20

Suppose the supply equation is: Upper Q equals 12 plus 0.30 p. What is the price elasticity of supply if the market price is $16 ? nothing (round your answer to three decimal places ).

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  1. 20 May, 20:49
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    Answer: 0.286

    Explanation:

    Price elasticity of supply is the the degree of responsiveness of the supply of a commodity to a change in its price. The price elasticity of supply is always positive because of the direct or positive relationship that exists between price and supply. The solution to the above question goes thus:

    Q = 12 + 0.30P

    Since Price (P) is 16,

    Q = 12 + 0.30 (16) = 12 + 4.8 = 16.8

    PES = dq/dp * p/q

    = 0.30 * 16/16.8

    = 0.286

    Therefore, the price elasticity of supply is 0.286.
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