Explanation of Elasticity of Supply:

Definition:
Elasticity of supply measures the responsiveness of the quantity supplied to a change in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.

Formula:
Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)

Given:
- % Change in Price = 10%
- % Change in Supply = 25%

Calculating the Elasticity of Supply:
To calculate the elasticity of supply, we need to determine the percentage change in quantity supplied and the percentage change in price.

Step 1: Calculating % Change in Quantity Supplied
The % change in quantity supplied is given as 25%. This means that the quantity supplied has increased by 25% in response to a 10% increase in price.

Step 2: Calculating % Change in Price
The % change in price is given as 10%. This means that the price has increased by 10%.

Step 3: Calculating Elasticity of Supply
Using the formula for elasticity of supply, we can now calculate the value.

Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)
Elasticity of Supply = 25% / 10%
Elasticity of Supply = 2.5

Interpretation of Elasticity of Supply:
The elasticity of supply is 2.5, which indicates that the supply is elastic. This means that the quantity supplied is highly responsive to changes in price. A 10% increase in price leads to a 25% increase in supply, showing that suppliers are willing and able to quickly adjust their production levels in response to price changes.

Explanation:
The high elasticity of supply in this case suggests that suppliers can easily increase their production in response to an increase in price. This may be due to factors such as readily available resources, efficient production processes, or a competitive market. As a result, the quantity supplied increases at a higher rate than the increase in price, resulting in a relatively elastic supply curve.

This information is useful for both producers and consumers. Producers can use this knowledge to anticipate changes in supply and adjust their prices accordingly. Consumers, on the other hand, can expect a relatively stable supply even when prices increase, which may help them make informed purchasing decisions.

Overall, understanding the elasticity of supply is crucial for analyzing market dynamics and predicting the effects of price changes on the quantity supplied. It allows economists and businesses to make informed decisions and understand the responsiveness of suppliers to changes in price.

Elastic sinc %age increase in supply >%age increase in price