Q2. Given that the price of commodity Y reduced from 600 FRW to 450 FRW resulting into a decrease in its quantity supplied from 800kgs to 200kgs. Determine its price elasticity of supply?

Price elasticity of supply is calculated using the formula:

Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price)

First, calculate the percentage change in quantity supplied:
% Change in Quantity Supplied = ((New Quantity Supplied - Old Quantity Supplied) / Old Quantity Supplied) x 100
% Change in Quantity Supplied = ((200 - 800) / 800) x 100
% Change in Quantity Supplied = (-600 / 800) x 100
% Change in Quantity Supplied = -75%

Next, calculate the percentage change in price:
% Change in Price = ((New Price - Old Price) / Old Price) x 100
% Change in Price = ((450 - 600) / 600) x 100
% Change in Price = (-150 / 600) x 100
% Change in Price = -25%

Now, plug the values into the formula:
Price Elasticity of Supply = (-75%) / (-25%)
Price Elasticity of Supply = 3

Therefore, the price elasticity of supply for commodity Y is 3.

Step 1: Calculate the percentage change in price

Price change = 600 FRW - 450 FRW = 150 FRW
Percentage change in price = (150 FRW / 600 FRW) x 100% = -25%

Step 2: Calculate the percentage change in quantity supplied

Quantity change = 800 kgs - 200 kgs = 600 kgs
Percentage change in quantity supplied = (600 kgs / 800 kgs) x 100% = -75%

Step 3: Calculate the price elasticity of supply

Price elasticity of supply (PES) = Percentage change in quantity supplied / Percentage change in price
PES = (-75%) / (-25%) = 3

Therefore, the price elasticity of supply for commodity Y is 3. This means that a 1% decrease in price leads to a 3% increase in quantity supplied.