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Commodities X and Y have equal price elasticity of supply. The supply of X rises from 400 units to 500 units due to a 20 per cent rise in its price. Calculate the percentage fall in supply of Y if its price falls by 8 per cent. |
Answer» Solution :In the given example, FIRST we will calculate Price ELASTICITY of Good X.  Percentage change in supply `=(DELTAQ)/(Q)xx100=(100)/(400)xx100=25%` ES=`("Percentage change in quantity SUPPLIED")/("Percentage change in price ")=(25%)/(20%)=1.25` Now, Price Elasticity of Good `Y=1.25` (as both X and Y have the same price elasticity.) Let us now calculate `%` FALL in Supply for Y.  ES `=("Percentage Change in supply")/("Percentage Change in Price")` `1.25=("Percentgae Change in supply")/(8)` Percentage fall in supply `=10%` Supply for Good Y will fall by `10%` |
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