If the coefficient of price elasticity of supply of a commodity is 0.8, then supply is

Analyze the question: We are given a coefficient of price elasticity of supply (PES) of 0.8 and must classify the supply.

Concept: PES measures how responsive quantity supplied is to a change in price:

PES = % change in quantity supplied ÷ % change in price

The classification depends on the coefficient:

• PES = 0 → perfectly inelastic supply
• 0 < PES < 1 → inelastic (fairly inelastic) supply
• PES = 1 → unitary elastic supply
• 1 < PES < ∞ → elastic (fairly elastic) supply
• PES = ∞ → perfectly elastic supply

Solution:

• The coefficient is 0.8.
• It is greater than 0, so supply is not perfectly inelastic (this rules out C).
• It is not infinite, so supply is not perfectly elastic (this rules out A).
• It is less than 1, so supply is not elastic (this rules out D).
• Since 0 < 0.8 < 1, quantity supplied changes by a smaller percentage than price. For example, a 10% rise in price leads to only an 8% rise in quantity supplied. This is fairly inelastic supply.

**Answer: B. fairly inelastic.

Tip: Remember the "1 rule." Below 1 means inelastic, above 1 means elastic, and exactly 1 means unitary. The extremes are 0 (perfectly inelastic) and infinity (perfectly elastic). Whenever you see a decimal like 0.8, it is inelastic.