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CA Foundation · Business Economics · Theory of Demand and Supply

A firm's supply schedule shows that it supplies 200 units at ₹20 per unit and 300 units at ₹25 per unit. Using the percentage method with the initial values as the base, the price elasticity of supply between these two points is:

The price elasticity of supply is 2.0. Quantity rises by 50 percent, from 200 to 300 units, while price rises by 25 percent, from ₹20 to ₹25. Dividing 50 by 25 gives 2, so supply is elastic.

  1. A0.5
  2. B1.5Correct
  3. C2.0
  4. D2.5

Explanation

Percentage change in quantity = (300 − 200)/200 × 100 = 50%. Percentage change in price = (25 − 20)/20 × 100 = 25%. Elasticity = 50/25 = 2.0. Check: 2.0 is the ratio, so the key is 2.0, not 1.5.

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