When the price of a cricket ball is Rs10, let us assume that 200 cricket balls are produced in aggregate by the firms in the market. When the price of a cricket ball rises to Rs.30, let us assume that 1,000 cricket balls are produced in aggregate by the firms in the market. Calculate the elasticity of supply.
When the price of a cricket ball is Rs10, let us assume that 200 cricket balls are produced in aggregate by the firms in the market. When the price of a cricket ball rises to Rs.30, let us assume that 1,000 cricket balls are produced in aggregate by the firms in the market. Calculate the elasticity of supply.
Solution
Option 1 -> Using the formula: Es = [(Q2-Q1)/Q1] / [(P2-P1)/P1] = [(1000-200)/200] / [(30-10)/10] = [800/200] / [20/10] = 4/2 = 2.
Option 2 -> Would require elasticity of 3, meaning quantity changes 3 times more proportionally than price.
Option 3 -> Would require elasticity of 4, meaning quantity changes 4 times more proportionally than price.
Option 4 -> Would mean unitary elasticity where percentage change in quantity equals percentage change in price.
Hence, Option 1: 2 -> The price elasticity of supply measures the responsiveness of quantity supplied to price changes. Here, when price increases by 200% (from 10 to 30), quantity supplied increases by 400% (from 200 to 1000). The elasticity = 400%/200% = 2, indicating that supply is elastic (Es > 1), meaning producers respond significantly to price changes. -> correct
Related questions:
2025: 3 June Shift 2
2025: 28 May Shift 2