#Price Elasticity of Supply: Your Ultimate Guide 🚀

Hey there, future AP Micro ace! Let's dive into Price Elasticity of Supply (PES), a concept that's super important for your exam. Think of it as the supply side's version of price elasticity of demand. Ready? Let’s go!

#What is Price Elasticity of Supply (PES)?

Just like how consumers react to price changes (that's price elasticity of demand), producers also adjust their output when prices shift. PES measures how sensitive the quantity supplied is to changes in price.

• High PES: Producers respond a lot to price changes (supply is elastic).
• Low PES: Producers don't change their output much when prices change (supply is inelastic).

Let's illustrate with an example:

Imagine two headphone companies:

• Firm A: Price goes from 50 to 75, and production increases from 10 to 12 headphones.
• Firm B: Price goes from 50 to 75, and production increases from 10 to 20 headphones.

Firm B is more price elastic because it's more responsive to price changes. 🎧

#Calculating Price Elasticity of Supply

The formula is very similar to the price elasticity of demand formula:

E_s = \frac{%\Delta Q_s}{%\Delta P}

Where:

• $E_s$ = Price elasticity of supply coefficient
• %Δ = Percent change
• $Q_s$ = Quantity supplied
• $P$ = Price

Let's calculate Firm B's PES from the example above:

• $Q_{s1} = 10$
• $Q_{s2} = 20$
• $$
• $P_1 = 50$
• $P_2 = 75$
• $$

Therefore:

$$E_s = \frac{100}{50} = 2$$

This means a 50% price increase leads to a 100% increase in quantity supplied. That's a pretty elastic supply! 💡

#Types of Elasticity of Supply

Here's a breakdown of the different types of supply elasticity:

#Perfectly Inelastic Supply

• $E_s = 0$
• Quantity supplied doesn't change, no matter the price. Think of a company with a monopoly on a unique product. They'll supply...