A seller increased the quantity he offered for sale from 200 units to 250 units when the price of his product increased by 12.5%. What is the price elastici...

A seller increased the quantity he offered for sale from 200 units to 250 units when the price of his product increased by 12.5%. What is the price elasticity of the supply of his product?

Answer Details

Price elasticity of supply measures the responsiveness of the quantity supplied of a product to a change in its price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price. In this case, the seller increased the quantity supplied from 200 units to 250 units when the price increased by 12.5%. We can calculate the percentage change in quantity supplied as follows: Percentage change in quantity supplied = ((new quantity - old quantity) / old quantity) x 100% = ((250 - 200) / 200) x 100% = 25% We can calculate the percentage change in price as follows: Percentage change in price = 12.5% Using these values, we can calculate the price elasticity of supply as: Price elasticity of supply = (percentage change in quantity supplied / percentage change in price) Price elasticity of supply = 25% / 12.5% = 2.00 Therefore, the price elasticity of supply for this product is 2.00, which means that a 1% increase in price leads to a 2% increase in the quantity supplied. This indicates that the supply of this product is relatively elastic, meaning that the seller is responsive to changes in price and is able to increase the quantity supplied significantly when the price increases.