Price elasticity of supply

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PES - definition

Price elasticity of supply (PES) is the responsiveness of quantity supplied to a change in price. PES is calculated using the following formula:

% Change in quantity supplied
% Change in price

Hence, if the price of a smartphone increases from £400 to £440 (a 10% increase), and supply increases from 2m a year to 2.1m (a 5% rise), PES for smartphones would be:

+5
+10

Which gives a PES value of (+) 0.5. The positive sign shows that price and quantity supplied are positively related, and the value (0.5) is less than 1, which means the PES for smartphones is inelastic.




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