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The price of a commodity rises from Rs 200 to Rs 220 and, as a result, the quantity supplied rises from 1,000 units to 1,300 units. The elasticity of supply is:
A0.3
B3.0
C1.0
D0.5
Answer & Solution
Correct answer: B. 3.0
1. Change in quantity, $\Delta q = 1300 - 1000 = 300$; original $q = 1000$.
2. Change in price, $\Delta p = 220 - 200 = 20$; original $p = 200$.
3. $E_s = \dfrac{\Delta q / q}{\Delta p / p} = \dfrac{300/1000}{20/200} = \dfrac{0.30}{0.10}$.
4. $E_s = 3.0$. Inverting the ratio would wrongly give 0.3.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.5_
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