Home
Back
Elasticity Formula:
| From: | To: |
Elasticity in economics measures the responsiveness of one variable to changes in another variable. It quantifies how much the quantity demanded or supplied changes in response to price changes, income changes, or changes in other factors.
The calculator uses the basic elasticity formula:
Where:
Explanation: The formula calculates the ratio of the percentage change in quantity to the percentage change in price, providing a measure of how sensitive quantity is to price changes.
Details: Elasticity is crucial for businesses to set optimal prices, for governments to design effective tax policies, and for economists to understand market behavior and consumer responsiveness.
Tips: Enter the percentage change in quantity and percentage change in price as decimal numbers. Both values must be valid numbers, and the percentage change in price cannot be zero.
Q1: What do different elasticity values mean?
A: |E| > 1 = elastic, |E| < 1 = inelastic, |E| = 1 = unit elastic. Positive values indicate normal goods, negative values indicate inferior goods.
Q2: What are the main types of elasticity?
A: Price elasticity of demand, price elasticity of supply, income elasticity, and cross-price elasticity are the main types used in economic analysis.
Q3: Why is elasticity important for businesses?
A: It helps businesses determine optimal pricing strategies, forecast revenue changes, and understand how price changes affect quantity demanded.
Q4: What factors affect elasticity?
A: Availability of substitutes, necessity vs luxury, time period, and proportion of income spent on the good all influence elasticity values.
Q5: Can elasticity change over time?
A: Yes, elasticity can change as consumer preferences evolve, new substitutes enter the market, or income levels change in the economy.