When the price elasticity of supply (PES) is 2.5, it indicates that the supply of a product is quite responsive to changes in its price. Specifically, a price elasticity of supply of 2.5 means that a 1% increase in the price of the good will result in a 2.5% increase in the quantity supplied.
This level of elasticity suggests that suppliers can easily adjust their production levels in response to price changes. In practical terms, if the price of a product rises, suppliers are more likely to ramp up production significantly, anticipating increased profits due to the higher prices. Conversely, if the price were to fall, the quantity supplied would decrease markedly, as producers may find it less profitable to produce at lower prices.
In summary, a price elasticity of supply greater than 1, such as 2.5, indicates elastic supply, meaning producers are flexible and responsive in their output decisions when prices fluctuate.