Question

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, what is the result in terms of the quantity supplied of minivans?

Answer 1

Answer:

1.5% in the short run

6% in the long run.

Explanation:

Given:

The elasticity of supply in the short run = 0.3

The elasticity of supply in the long run = 1.2

Increase in price = 5%

Computation:

A. In short-run

The elasticity of supply in the short run = Percentage change in Quantity / Percentage change in Price

0.3 = Percentage change in Quantity / 5%

1.5% = Percentage change in Quantity

B. In the long run

The elasticity of supply in the long run = Percentage change in Quantity / Percentage change in Price

1.2 = Percentage change in Quantity / 5%

6% = Percentage change in Quantity