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Question
Macroeconomics
Posted 6 months ago

When the price of pickles increased 20%20 \%, the quantity supplied of pickles increased 80%80 \%.

What is the price elasticity of supply and how is that value interpreted?
Choose 1 answer:
(A) 6 ; elastic
(B) 4 ; inelastic
(C) 4 ; elastic.
(D) 0.25 ; normal good
(E) 0.25 ; inelastic
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Answer from Sia
Posted 6 months ago
Solution
a
Calculation of Price Elasticity of Supply (PES): The price elasticity of supply is calculated using the formula PES=% change in quantity supplied% change in price PES = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}
b
Applying the given percentages: Given that the price of pickles increased by 20%20\% and the quantity supplied increased by 80%80\%, we apply these values to the formula: PES=80%20%=4 PES = \frac{80\%}{20\%} = 4
c
Interpretation of the PES value: A PES value greater than 1 indicates that the supply is elastic, meaning that the quantity supplied is responsive to price changes
Answer
C) 4; elastic
Key Concept
Price Elasticity of Supply
Explanation
The price elasticity of supply measures how much the quantity supplied responds to a change in price. A value greater than 1 indicates an elastic supply, which is the case when the quantity supplied increases by a larger percentage than the price increase.

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