The price of a product increases by 12%, and this leads to a short-run increase in quantity supplied of 9%. What is the elasticity of supply for this product?

Rationale

Elasticity of supply for this product is 0.75.

The elasticity of supply measures the responsiveness of quantity supplied to a change in price. In this case, a 12% increase in price results in a 9% increase in quantity supplied, yielding an elasticity of supply calculated as the percentage change in quantity supplied divided by the percentage change in price (9% / 12% = 0.75).

A (1.33) YOUR ANSWER

An elasticity of 1.33 would indicate that quantity supplied is relatively responsive to price changes, with a 33% increase in quantity supplied for a 12% price increase. This is not supported by the given data, as the actual increase was only 9%, making this choice incorrect.

B (0.75) CORRECT

This option correctly reflects the calculated elasticity of supply. The formula used—9% increase in quantity supplied divided by a 12% increase in price—results in an elasticity of 0.75, indicating that the supply is inelastic and less responsive to price changes.

C (3) YOUR ANSWER

An elasticity of 3 would suggest a highly elastic supply where a 12% price increase would lead to a 36% increase in quantity supplied. However, the actual increase is only 9%, which contradicts this assertion, thus rendering this choice incorrect.

D (1.08) YOUR ANSWER

An elasticity of 1.08 implies a nearly unit elastic reaction, meaning that quantity supplied would increase by approximately 12.96% for a 12% price rise. Since the actual increase is only 9%, this option does not accurately describe the relationship between price change and quantity supplied.

Conclusion

The elasticity of supply for this product is determined to be 0.75, indicating a relatively inelastic response to price changes. The calculated value illustrates that while the quantity supplied does increase with price, the increase is less than proportional, thus confirming the supply's inelastic nature in the short run.

The price of a product increases by 12%, and this leads to a short-run increase in quantity supplied of 9%. What is the elasticity of supply for this product?

Elasticity of supply for this product is 0.75.

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