Elasticity Measure
An Elasticity Measure is a rate measure (unitless ratio) of responsiveness of one variable relative to another variable.
- Context:
- It can produce an Elasticity Value (which can range from being negative elasticity to being positive elasticity).
- It can be expressed as [math]\displaystyle{ E_d = \frac{\%\ \mbox{change in X}}{\%\ \mbox{change in Y}} = \frac{\Delta X_d/X_d}{\Delta Y/Y} }[/math]
- Example(s):
- Counter-Example(s):
- a Cross-Elasticity Measure, such as a cross-wage elasticity.
- See: Percent Change, Elasticity of a function, Elasticity of Substitution, Factors of Production.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Elasticity_(economics) Retrieved:2014-11-29.
- An elastic variable (or elasticity value greater than 1) is one which responds more than proportionally to changes in other variables. In contrast, an inelastic variable (or elasticity value less than 1) is one which changes less than proportionally in response to changes in other variables.
Elasticity can be quantified as the ratio of the percentage change in one variable to the percentage change in another variable, when the latter variable has a causal influence on the former. A more precise definition is given in terms of differential calculus. It is a tool for measuring the responsiveness of one variable to changes in another, causative variable. Elasticity has the advantage of being a unitless ratio, independent of the type of quantities being varied. Frequently used elasticities include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution.
Elasticity is one of the most important concepts in neoclassical economic theory. It is useful in understanding the incidence of indirect taxation, marginal concepts as they relate to the theory of the firm, and distribution of wealth and different types of goods as they relate to the theory of consumer choice. Elasticity is also crucially important in any discussion of welfare distribution, in particular consumer surplus, producer surplus, or government surplus.
In empirical work an elasticity is the estimated coefficient in a linear regression equation where both the dependent variable and the independent variable are in natural logs. Elasticity is a popular tool among empiricists because it is independent of units and thus simplifies data analysis.
A major study of the price elasticity of supply and the price elasticity of demand for US products was undertaken by Hendrik S. Houthakker and Lester D. Taylor. [1]
- An elastic variable (or elasticity value greater than 1) is one which responds more than proportionally to changes in other variables. In contrast, an inelastic variable (or elasticity value less than 1) is one which changes less than proportionally in response to changes in other variables.
- ↑ Hendrik S. Houthakker, Lester D. Taylor (1970).
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Elasticity_(economics) Retrieved:2014-11-29.
- In economics, elasticity is the measurement of how responsive an economic variable is to a change in another. For example:
- "If I lower the price of my product, how much more will I sell?"
- "If I raise the price of one good, how will that affect sales of this other good?"
- "If we learn that a resource is becoming scarce, will people scramble to acquire it?"
- In economics, elasticity is the measurement of how responsive an economic variable is to a change in another. For example:
2011
- http://www.freeeconhelp.com/2011/05/what-does-elasticity-mean-to-economists.html
- QUOTE: If the rubber band is inelastic (not very stretchy), then it does not react (stretch) very much when you exert effort to stretch it. This idea is very similar to what happens when looking at elasticities in economics. If you have an inelastic price elasticity of demand, then if you change price (similar to your effort), then the quantity demanded does not change very much (how much the rubber band stretches).
1970
- (Houthakker & Taylor, 1970) ⇒ Hendrik S. Houthakker, and Lester D. Taylor. (1970). “Consumer Demand in the United States."