Home › CA Foundation › Business Economics › Supply › The supply function for a good is $q = -20 + 4p$…
The supply function for a good is $q = -20 + 4p$. Using the point method, the elasticity of supply when price is Rs 10 equals:
A2.0
B4.0
C0.5
D1.5
Answer & Solution
Correct answer: A. 2.0
1. Point elasticity: $E_s = \dfrac{dq}{dp} \times \dfrac{p}{q}$.
2. Differentiate: $\dfrac{dq}{dp} = 4$.
3. At $p = 10$: $q = -20 + 4(10) = -20 + 40 = 20$.
4. $E_s = 4 \times \dfrac{10}{20} = 4 \times 0.5 = 2.0$. Using $dq/dp$ alone wrongly gives 4.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.9_
Related questions
A noted exception to the law of supply is the supply of labour, where at very high wage raAn increase in the number of firms selling a good in a market, other things constant, willSocial efficiency in a competitive market is achieved at the equilibrium price because at Producer surplus in a market is best described as the benefit producers gain because the pIf the supply of bottled water decreases while demand stays the same, the new market equilIf, at the prevailing price, the quantity demanded of a good exceeds the quantity suppliedIn a market, the demand and supply schedule shows that at Rs 3 quantity demanded equals quThe market price of a good is the level at which the wishes of buyers and sellers coincide