If the quantity supplied of a commodity increases from 20 to 30 units when there is an increase in price from N4 to N5, the elasticity of supply is
A. 4
B. 1
C. 2
D. 5
Correct Answer: C
Explanation
Percentage change in quantity supplied = (Change in quality supplied ÷ Old quantity supplied ) × 100
(30 – 20) ÷ 20 × 100
(10 ÷ 20) × 100 = 50%
Percentage change in price
(Change in price ÷ Old price )× 100
((5 – 4) ÷ 4) × 100
¼ × 100 = 25%
Therefore, the coefficient of price elasticity of supply is
Percentage change in quantity supplied ÷ Percentage change in price
50% ÷ 25% = 2
