A bakery increases the price of its sourdough loaves from $4.00 to $5.00 per loaf. In response, the quantity of loaves it supplies each week rises from 800 to 880. What is the price elasticity of supply (PES) of sourdough loaves?

Answer: A. Step 1: Calculate the percentage change in price Using the original price of $4.00 as the base: % P = 5.00-4.00/4.00×100 = +25% Step 2: Calculate the percentage change in quantity supplied Using the original quantity of 800 as the base: %…

IGCSE Economics 0455: Calculating Price Elasticity of Supply (PES)

Step 1: Calculate the percentage change in price

Using the original price of $4.00 as the base: $\%\Delta P = \frac{5.00-4.00}{4.00}\times100 = +25\%$

Step 2: Calculate the percentage change in quantity supplied

Using the original quantity of 800 as the base: $\%\Delta Q_s = \frac{880-800}{800}\times100 = +10\%$

Step 3: Apply the PES formula

$PES = \frac{\%\Delta Q_s}{\%\Delta P} = \frac{10}{25} = 0.4$

Since $0.4 < 1$ , supply of sourdough loaves is price inelastic: the percentage rise in quantity supplied (10%) is proportionately smaller than the percentage rise in price (25%).

Step 4: Rule out the other options

Option B ( $2.5$ ) comes from inverting the formula: $25 \div 10$ .
Option C ( $0.1$ ) uses the raw fractional change in quantity ( $80 \div 800$ ) but never brings the percentage change in price into the calculation at all.
Option D ( $4.0$ ) comes from using the change in quantity (80) as the base for the percentage change instead of the original quantity (800), which wrongly inflates $\%\Delta Q_s$ to 100%.

Final answer

$PES = \boxed{0.4}$ , option A. Supply of sourdough loaves is price inelastic.