Differentiate between perfectly elastic supply and perfectly inelastic supply. When the price of a good is $100, 50 units are supplied. When the price increases to $300, 250 units are supplied. Calculate the price elasticity of supply of the good
What will be an ideal response?
A good is said to have a perfectly elastic supply when a very small change in the good's price leads to an infinite change in the good's quantity supplied. The price elasticity of supply of such goods equals infinity. On the other hand, a good is said to have a perfectly inelastic supply when the quantity supplied of a good does not change with changes in its price, in which case the price elasticity of supply equals zero.
Percentage change in price of the good when price increases from $100 to $300 = 200%
Percentage change in quantity supplied of the good from 50 units to 250 units = 400%
Hence price elasticity of supply of the good = 400/200 = 2.
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