If a rise in the price of oranges from $7 to $9 a bushel, caused by a shift of the demand curve, increases the quantity of bushels supplied from 4,500 to 5,500 bushels, the correct interpretation is

If a rise in the price of oranges from $7 to $9 a bushel, caused by a shift of the demand curve, increases the quantity of bushels supplied from 4,500 to 5,500 bushels, the correct interpretation is

• A. Demand for oranges is elastic.
• B. Supply of oranges is elastic.
• C. Demand for oranges is inelastic.
• D. Supply of oranges is inelastic.

Answer: (D)

The key idea is how much producers respond to a change in price, which is measured by the elasticity of supply. Here, the price of oranges rises from $7 to $9, a 28.6% increase ((9−7)/7). In response, the quantity supplied rises from 4,500 to 5,500 bushels, a 22.2% increase ((5,500−4,500)/4,500). The elasticity of supply is roughly 0.22 / 0.286 ≈ 0.78. Since this elasticity is less than 1, the quantity supplied changes by a smaller proportion than the price, indicating inelastic supply. The fact that the price move stemmed from a shift in demand doesn’t change this interpretation—the elasticity of supply looks at how quantity supplied responds to price, holding other factors constant. The other statements speak about demand elasticity or claim a larger responsiveness of supply, which isn’t supported by the calculated value.

The key idea is how much producers respond to a change in price, which is measured by the elasticity of supply. Here, the price of oranges rises from $7 to $9, a 28.6% increase ((9−7)/7). In response, the quantity supplied rises from 4,500 to 5,500 bushels, a 22.2% increase ((5,500−4,500)/4,500). The elasticity of supply is roughly 0.22 / 0.286 ≈ 0.78. Since this elasticity is less than 1, the quantity supplied changes by a smaller proportion than the price, indicating inelastic supply.

The fact that the price move stemmed from a shift in demand doesn’t change this interpretation—the elasticity of supply looks at how quantity supplied responds to price, holding other factors constant. The other statements speak about demand elasticity or claim a larger responsiveness of supply, which isn’t supported by the calculated value.