The elasticity of supply of product x is unitary if the price of x rises by a certain percentage and the quantity supplied of x:

• A. increases by the same percentage as the price
• B. increases by a smaller percentage than the price
• C. does not change
• D. increases by a greater percentage than the price

Answer: (A)

Verified step by step guidance

1. Understand the concept of price elasticity of supply, which measures the responsiveness of quantity supplied to a change in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
2. Recall the formula for price elasticity of supply: \(\text{Elasticity of Supply} = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}\).
3. Recognize that when the elasticity of supply is unitary, it means the elasticity equals 1, indicating proportional responsiveness.
4. Set the elasticity equal to 1 and interpret this condition: \$1 = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}$.
5. Conclude that for unitary elasticity, the percentage change in quantity supplied must be exactly the same as the percentage change in price.