If the price rises by 5% and quantity supplied rises by 7%, the elasticity is 1.4, which statement is true?

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Improve your understanding of Elasticities of Demand and Supply. This test includes multiple choice questions with explanations to get you exam-ready. Enhance your knowledge and excel on your test.

Multiple Choice

If the price rises by 5% and quantity supplied rises by 7%, the elasticity is 1.4, which statement is true?

Explanation:
The concept being tested is price elasticity of supply, which shows how much quantity supplied responds to a price change. Here, elasticity is 7% / 5% = 1.4. Since 1.4 is greater than 1, the supply response is proportionally larger than the price change, which means supply is elastic. (If it were less than 1, it would be inelastic; if it were exactly 1, unit elastic.)

The concept being tested is price elasticity of supply, which shows how much quantity supplied responds to a price change. Here, elasticity is 7% / 5% = 1.4. Since 1.4 is greater than 1, the supply response is proportionally larger than the price change, which means supply is elastic. (If it were less than 1, it would be inelastic; if it were exactly 1, unit elastic.)

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