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Standard XII

Accountancy

Inventory Turnover Ratio

When the pric...

Question

When the price of a commodity changes from Rs. $4$ per unit to Rs. $5$ unit, its market supply rises from $100$ units to $120$ units. Calculate price elasticity of supply. Is supply elastic? Give reason.

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Solution

Price elasticity of supply = % change in quantity supplied / % change in price
Therefore, Price elasticity of supply= ((120-100)/(120+100))*( (5-4)/(5+4))
= 0.80
Since, price elasticity of supply is less than 1, supply of this commodity is inelastic. This means that a shift in price won't drastically affect the supply of the commodity.

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When the price of a commodity changes from Rs. 4 per unit to Rs. 5 unit, its market supply rises from 100 units to 120 units. Calculate price elasticity of supply. Is supply elastic? Give reason.

When the price of a commodity changes from Rs. $4$ per unit to Rs. $5$ unit, its market supply rises from $100$ units to $120$ units. Calculate price elasticity of supply. Is supply elastic? Give reason.