Calculate the price elasticity of supply for the following goods. Also comment on the elasticity in each case
a) When the price of a good is $100, 200 units are supplied. But when the price increases to $300, 220 units are supplied.
b) When the price of a good is $50, 50 units are supplied. But when the price decreases to $30, 10 units are supplied.
a) Percentage change in price = 200%
Percentage change in quantity supplied = 10%
Price elasticity of supply = 10/200 = 0.05
The good has a relatively inelastic supply.
b) Percentage change in price = -40%
Percentage change in quantity supplied = -80%
Price elasticity of supply = -80/-40 = 2
The good has a relatively elastic supply.
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