A seller increased the quantity he offered for sale from 200 units to 250 units when the price of his product increased by 12.5%. What is the price elasticity of the supply of his product?

A. 2.00
B. 1.50
C. 1.00
D. 0.50

Correct Answer:

Option A = 2.00

Explanation

The price elasticity of supply = % change in quantity supplied / % change in price

% change in quantity supplied = 250 – 200 = 50

50/200 x 100 = 25

Therefore, price elasticity of supply = 25/12.5 = 2