Calculate the price elasticity of supply for the following goods. ...

[luvbio]

Calculate the price elasticity of supply for the following goods. Also comment on the elasticity in each case.
 
  a) When the price of a good is 100, 200 units are supplied. But when the price increases to 300, 220 units are supplied.
  b) When the price of a good is 50, 50 units are supplied. But when the price decreases to 30, 10 units are supplied.

Question 2

When a commercial bank lends 1000 to a customer, and the loan proceeds are spent by the customer, the legal reserves of the banking system
 
  A) decline by 1000.
  B) do not change unless the loan proceeds are withdrawn in currency.
  C) rise by 1000.
  D) rise by more than 1000 because spending increases nominal GDP.

[recede]

Answer to Question 1

a) Percentage change in price = 200
Percentage change in quantity supplied = 10
Price elasticity of supply = 10/200 = 0.05
The good has a relatively inelastic supply.
b) Percentage change in price = -40
Percentage change in quantity supplied = -80
Price elasticity of supply = -80/-40 = 2
The good has a relatively elastic supply.

Answer to Question 2

B