Price Elasticity of Supply
Price elasticity of supply (PES) measures the responsiveness of quantity supplied to price changes. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. PES shows whether supply is elastic (responsive) or inelastic (unresponsive) to price.
Real World
During the 2021 semiconductor shortage, car manufacturers like Ford could not quickly increase chip supply because fabrication plants take two to three years to build, illustrating highly inelastic short-run supply.
Exam Focus
Always link PES to a time period — short run versus long run — and explain the factor (spare capacity, storage, production time) driving elasticity.
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