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Using the arc method, find the elasticity of supply when price rises from Rs 12 to Rs 18 and quantity supplied rises from 30 units to 50 units.
A0.8
B1.25
C2.0
D0.25
Answer & Solution
Correct answer: B. 1.25
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: $\dfrac{50 - 30}{50 + 30} = \dfrac{20}{80} = 0.25$.
3. Price term: $\dfrac{18 + 12}{18 - 12} = \dfrac{30}{6} = 5$.
4. $E_s = 0.25 \times 5 = 1.25$. Inverting the two ratios gives 0.8; reading only the quantity term gives 0.25.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.9_
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