If the price of an item changes by 8% and quantity supplied changes from 600 units to 660 units, the price elasticity of supply is

Answer Details

The price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a product to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the price of the item changed by 8%, from its initial value, and the quantity supplied changed from 600 units to 660 units, which represents a 10% increase. Using the formula for PES, we get: PES = percentage change in quantity supplied / percentage change in price PES = 10% / 8% = 1.25 Therefore, the price elasticity of supply is 1.25. In other words, the quantity supplied of the item is relatively responsive to changes in its price. A PES of 1.25 indicates that a 1% increase in the price of the item will result in a 1.25% increase in the quantity supplied, assuming all other factors remain constant.