Assume Qd=10-2p and Qs=p what is the elasticity of Supply if price increases from $1 to $3?

(a) Unit elastic

(b) Inelastic

(c) Elastic

(d) Not enough information is available to answer this question

A. unit elastic

Explanation:

The price elasticity of supply can be calculated by a formula as below:

+) Price elasticity of supply = Changes in supplied quantity / Changes in prices = (%ΔQs) / (%ΔP)

When price = $1, the quantity supplied is: Qs = p = 1

When price = $3, the quantity supplied is: Qs = p = 3

So that when price increases from $1 to $3, the quantity supplied changes from 1 to 3.

=> Changes in supplied quantity is: 3 - 1 = 2

Changes in price is: $3 - $1 = $2

=> Price elasticity of supply = 2/2 = 1

When the price elasticity of supply is equal exactly to 1, the product is considered to be unit - elastic.

So that A is the true answer.