Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?

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One Response to “Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase pro?”

The price elasticity of supply is equal to the percentage change in quantity supplied divided by the percentage change in price. So plug the numbers that you know into this equation. You end up with:

2.5 = 20% / X, and you want to solve for X. You have: 2.5X = 20%; or X = 20% / 2.5; or X = 8. The price would have to increase by 8% in order to increase production by 20%.

August 23rd, 2011 at 12:17 am

8%

The price elasticity of supply is equal to the percentage change in quantity supplied divided by the percentage change in price. So plug the numbers that you know into this equation. You end up with:

2.5 = 20% / X, and you want to solve for X. You have: 2.5X = 20%; or X = 20% / 2.5; or X = 8. The price would have to increase by 8% in order to increase production by 20%.