Question

2. The table below presents the price and quantity supplied by a palm oil producer:
Price($): 6, 12, 18, 20, 24 — Quantity supplied (gallons): 200, 300, 400, 500, 600.
(a) If the price of palm oil falls from $20.00 to $18.00, calculate the price elasticity of supply. (4 marks)
(b) Interpret your answer in question 2(a) above. (2 marks)

Accepted Answer

(a) At P=$20, Q=500. At P=$18, Q=400.
% change in Q = (400−500)/500 × 100 = −20%
% change in P = (18−20)/20 × 100 = −10%
Price elasticity of supply = −20/−10 = 2

(b) Since the coefficient (2) is greater than 1, supply is elastic — a given percentage change in price leads to a more-than-proportionate (double) percentage change in quantity supplied.

WAEC Economics 2014 Theory — Question 2

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