Final answer:
The correct formula for the price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. It measures the responsiveness of the quantity supplied to price changes, indicating whether supply is elastic or inelastic.
Option 'a' is the correct.
Step-by-step explanation:
The formula for the price elasticity of supply is essential for understanding how responsive the quantity supplied of a good or service is to changes in its price.
This concept is pivotal in economics, especially when examining how market dynamics affect producers. The correct formula for price elasticity of supply is:
- b) % change in quantity supplied / % change in price.
To calculate the price elasticity of supply, we need to take the percentage change in the quantity of the good or service that suppliers are willing to provide and divide it by the percentage change in the good's price.
This ratio provides insight into whether the supply of a product is considered elastic, unit elastic, or inelastic. An elastic supply indicates a significant change in quantity supplied in response to a price change. In contrast, an inelastic supply suggests that there is only a small change in quantity supplied despite changes in price.