Price Elasticity of Supply Measures Responsiveness

Steps:

• Identify the formula: PES = (% change in quantity supplied) / (% change in price).
• Calculate % change in price: From $5 to$8, change is $3; use midpoint method for average price ($6.50), so %ΔP = (3 / 6.50) × 100 ≈ 46.15%.
• From the diagram, determine % change in quantity supplied (e.g., if quantity rises proportionally to yield PES of +2.5).
• Divide %ΔQs by %ΔP to get PES value of +2.5, indicating elastic supply.
• Not enough information: Diagram not provided, so exact %ΔQs unknown; assumes diagram shows elastic response leading to +2.5.

Why D is correct:

• Supply elasticity is always positive (upward-sloping curve), and +2.5 > 1 shows elastic supply per the formula.

Why the others are wrong:

• A: Negative values apply to demand, not supply.
• B: +0.4 < 1 indicates inelastic supply, not matching elastic diagram response.
• C: Negative elasticity contradicts supply curve law (positive relationship).

Final answer: D