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ELASTICITY

Elasticity is the concept economists use to describe the steepness or flatness of curves or functions.

In general, elasticity measures the responsiveness of one variable to changes in another variable.

Measures the responsiveness of quantity demanded to changes in a good’s own price.

The price elasticity of demand is the percent change in quantity demanded divided by the percent change in price that caused the change in quantity demanded.

It’s always a ratio of percentage changes.

That means it is a pure number -- there are no units of measurement on elasticity.

Price elasticity of demand is computed along a demand curve.

 

THERE ARE LOTS OF WAYS TO COMPUTE ELASTICITIES.  SO BEWARE!  THE DEVIL IS IN THE DETAILS.

MOST OF THE AMBIGUITY IS DUE TO THE MANY WAYS YOU CAN COMPUTE A PERCENTAGE CHANGE.  BE ALERT HERE.  IT’S NOT DIFFICULT, BUT CARE IS NEEDED.

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