21. The price of a product increases by 12%, and this leads to a short-run increase in quantity supplied of 5%. What is the elasticity of supply for this product?
Answer: C
The elasticity of supply for this product is 1.33.
Elasticity of supply measures how responsive the quantity supplied is to a change in price. In this case, with a price increase of 12% leading to a 5% increase in quantity supplied, the elasticity can be calculated as the percentage change in quantity supplied divided by the percentage change in price, resulting in an elasticity of 1.33.
A) 0.75
This option suggests that the quantity supplied is relatively inelastic, meaning that it responds less than proportionately to the price change. Given that the quantity supplied increased by 5% in response to a 12% price increase, an elasticity of 0.75 would inaccurately represent the actual responsiveness observed.
B) 3
An elasticity of 3 indicates a highly elastic supply, suggesting that the quantity supplied would increase three times as much as the price increase. However, since the actual increase in quantity supplied was only 5% in response to a 12% price increase, this option overstates the responsiveness and is therefore incorrect.
C) 1.33
This option correctly reflects the calculated elasticity of supply. With a 12% increase in price leading to a 5% increase in quantity supplied, the elasticity is computed as 5% / 12%, resulting in approximately 1.33. This indicates a relatively elastic supply, consistent with the observed data.
D) 1.08
An elasticity of 1.08 suggests a slightly elastic supply, meaning the quantity supplied changes somewhat in response to price changes. However, this value does not accurately match the calculated elasticity of 1.33, indicating that it underrepresents the actual responsiveness of quantity supplied to the price increase.
Conclusion
The correct answer is 1.33, as it accurately represents the responsiveness of quantity supplied to the price increase based on the calculations. All other options either understate or overstate the elasticity, failing to align with the given data of a 5% increase in quantity supplied for a 12% price increase. Thus, option C is the only choice that correctly captures the elasticity of supply for this product.