In economics, elasticity is the measurement of how an economic variable responds to a change in another.

Economics is a social science concerned with the factors that determine the production, distribution, and consumption of goods and services.

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It gives answers to questions such as:

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"If I lower the price of a product, how much more will sell?"


"If I raise the price of one good, how will that affect sales of this other good?"


"If the market price of a product goes down, how much will that affect the amount that firms will be willing to supply to the market?"


An elastic variable is one which responds more than proportionally to changes in other variables.


In contrast, an inelastic variable is one which changes less than proportionally in response to changes in other variables.


A variable can have different values of its elasticity at different starting points: for example, the quantity of a good supplied by producers might be elastic at low prices but inelastic at higher prices, so that a rise from an initially low price might bring on a more-than-proportionate increase in quantity supplied while a rise from an initially high price might bring on a less-than-proportionate rise in quantity supplied.


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.

Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus.

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services.

Elasticity of substitution is the elasticity of the ratio of two inputs to a production function with respect to the ratio of their marginal products.


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.

In economics, marginal concepts are associated with a specific change in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity thereof.

The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behavior, structure, and relationship to the market.

The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.


Elasticity is also crucially important in any discussion of welfare distribution, in particular consumer surplus, producer surplus, or government surplus.

A government budget is an annual financial statement presenting the government's proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the Finance Minister to the nation.

In mainstream economics, economic surplus, also known as total welfare or Marshallian surplus, refers to two related quantities.


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.

In statistics, linear regression is a linear approach for modeling the relationship between a scalar dependent variable y and one or more explanatory variables denoted X. The case of one explanatory variable is called simple linear regression.

In mathematical modeling, statistical modeling and experimental sciences, the values of dependent variables depend on the values of independent variables.


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 in the late 1960s.

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