If a 1% decrease in the price of a pound of oranges results in a smaller percentage decrease in the quantity supplied, the market condition is

If a 1% decrease in the price of a pound of oranges results in a smaller percentage decrease in the quantity supplied, the market condition is

• A. Supply is inelastic.
• B. Demand is inelastic.
• C. Demand is elastic.
• D. Supply is elastic.

Answer: (A)

The idea being tested is elasticity of supply—the way quantity supplied responds to price changes. If the price of oranges falls by 1% and the quantity supplied falls by a smaller percentage, producers reduce output, but not proportionally to the price drop. That means the percentage change in quantity supplied is smaller than the percentage change in price, so the elasticity of supply is less than one in absolute value. This is the hallmark of inelastic supply: producers can’t or won’t adjust production much in response to price movements. For example, if a 1% price decline leads to a 0.5% drop in quantity, the elasticity is 0.5, confirming inelastic supply.

The idea being tested is elasticity of supply—the way quantity supplied responds to price changes. If the price of oranges falls by 1% and the quantity supplied falls by a smaller percentage, producers reduce output, but not proportionally to the price drop. That means the percentage change in quantity supplied is smaller than the percentage change in price, so the elasticity of supply is less than one in absolute value. This is the hallmark of inelastic supply: producers can’t or won’t adjust production much in response to price movements. For example, if a 1% price decline leads to a 0.5% drop in quantity, the elasticity is 0.5, confirming inelastic supply.