The price elasticity of supply of cocoa beans is +0.75. If the price of cocoa beans rises by 20%, what is the percentage change in quantity supplied? A) -15.0% B) +15.0% C) -26.7% D) +26.7%
The percentage change in quantity supplied is +15.0%, so the correct answer is B. Using price elasticity of supply, $E_s = \%\Delta Q_s / \%\Delta P$, so $\%\Delta Q_s = 0.75 \times 20\% = 15\%$. Because the elasticity is positive and price rises, quantity supplied rises.
What this question is testing
You are using price elasticity of supply to link a percentage price change to the resulting percentage change in quantity supplied.
Use the elasticity formula
Price elasticity of supply is
$$E_s = \frac{\%\Delta Q_s}{\%\Delta P}$$
Rearrange to solve for $\%\Delta Q_s$:
$$\%\Delta Q_s = E_s \times \%\Delta P$$
Plug in the numbers
Given $E_s = +0.75$ and $\%\Delta P = +20\%$:
$$\%\Delta Q_s = 0.75 \times 20\% = 15\%$$
Match to the choices
A positive result means quantity supplied increases, so the correct option is B) +15.0%.
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