Question

Suppose that the price of apples increases by 10%. Within a short amount of time, apple producers are able to increase the quantity of apples supplied by 2%. The higher price has made it worthwhile to use extra labor to reduce waste and spoilage. Is this short run adjustment showing elastic or inelastic supply? Explain.

Answer 1

Answer:

inelastic

Price elasticity of supply = 2% / 10% = 0.2

the coefficient of elasticity is less than 1. this means that supply is inelastic. the percentage increase in quantity supplied is less than the percentage increase in price

Explanation:

Price elasticity of supply measures the responsiveness of quantity supplied to changes in price of the good.

Price elasticity of supply = percentage change in quantity supplied / percentage change in price  

If the absolute value of price elasticity is greater than one, it means supply is elastic. Elastic supply means that quantity supplied is sensitive to price changes.  

Supply is inelastic if a small change in price has little or no effect on quantity supplied. The absolute value of elasticity would be less than one

supply is unit elastic if a small change in price has an equal and proportionate effect on quantity supplied.