Using Price Elasticity of Supply Formula

Steps:

• Percentage change in price: (5 - 4) / 4 = 0.25 or 25%.
• Percentage change in quantity supplied: elasticity × percentage change in price = 2 × 25% = 50%.
• Initial quantity supplied at $4: 20 units.
• New quantity supplied at $5: 20 × (1 + 0.50) = 30 units.

Why C is correct:

• Elasticity of supply equals percentage change in quantity divided by percentage change in price; here, 50% quantity increase on 25% price rise yields exactly 30 units.

Why the others are wrong:

• A. 10: Implies negative elasticity, but supply curves slope upward.
• B. 25: Matches elasticity of 1 (25% quantity change on 25% price change).
• D. 40: Matches elasticity of 3 (100% quantity change on 25% price change).

Final answer: C