alleryUsing the arc method, find the elasticity of supply when price rises from Rs 10 to Rs 15 and quantity supplied rises from 40 units to 60 units.
A1.0
B0.4
C2.5
D1.5
Answer & Solution
Correct answer: A. 1.0
1. Arc formula: $E_s = \dfrac{Q_2 - Q_1}{Q_2 + Q_1} \times \dfrac{P_2 + P_1}{P_2 - P_1}$.
2. Quantity term: $\dfrac{60 - 40}{60 + 40} = \dfrac{20}{100} = 0.2$.
3. Price term: $\dfrac{15 + 10}{15 - 10} = \dfrac{25}{5} = 5$.
4. $E_s = 0.2 \times 5 = 1.0$. Reading only the quantity term gives 0.4; using simple (non-arc) percentages gives 2.5.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.9_
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