If the price rises from 25 pence to 30 pence and the quantity supplied increases from 40 units to 44 units, what is the price elasticity of supply?

Explanation

The price elasticity of supply measures the responsiveness of quantity supplied to a change in price. Here, the percentage change in quantity supplied is ((44 - 40) / 40) = 0.10 or 10%, and the percentage change in price is ((30 - 25) / 25) = 0.20 or 20%. Elasticity = 10% / 20% = 0.5, indicating a relatively inelastic supply.