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The theory of the firm under perfect competition — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsThe theory of the firm under perfect competition3 Marks
Question
Quantity supplied of a commodity increases by $50 \%$ when its price rises from $₹ 8$ per unit to $₹ 10$ per unit. Calculate elasticity of supply.
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Answer

Original Price $(P) = ₹ 8$ % rise in Quantity $= 50 \%$
New Price $(P_1) = ₹ 10$ Elasticity of Supply $(ES) = ?$
Change in Price $(\Delta\text{Q})=₹\text{ 2}$
Percentage change in price $\frac{\Delta\text{P}}{\text{P}}\times100=\frac{2}{8}\times100=25\%$
$\text{ES}=\frac{\text{Percentage change in supply}}{\text{Percentage Change in Price}}$
$=\frac{50\%}{25\%}=2$
ES = 2 (Supply is highly elastic as ES > 1) ES is always positive due to direct relationship between price and quantity supplied.

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