In economics, elasticity measures the responsiveness of one economic variable to a change in another.^[1] If the price elasticity of the demand of something is -2, a 10% increase in price causes the quantity demanded to fall by 20%. Elasticity in economics provides an understanding of changes in the behavior of the buyers and sellers with price changes. There are two types of elasticity for demand and supply, one is inelastic demand and supply and the other one is elastic demand and supply.^[2]

Introduction

The concept of price elasticity was first cited in an informal form in the book Principles of Economics published by the author Alfred Marshall in 1890.^[3] Subsequently, a major study of the price elasticity of supply and the price elasticity of demand for US products was undertaken by Joshua Levy and Trevor Pollock in the late 1960s.^[4]

Elasticity is an important concept in neoclassical economic theory, and enables in the understanding of various economic concepts, such as the incidence of indirect taxation, marginal concepts relating to the theory of the firm, distribution of wealth, and different types of goods relating to the theory of consumer choice. An understanding of elasticity is also important when discussing welfare distribution, in particular consumer surplus, producer surplus, or government surplus.^[5]

Elasticity is present throughout many economic theories, with the concept of elasticity appearing in several main indicators. These include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production, cross-price elasticity of demand, and elasticity of intertemporal substitution.^[6]

In differential calculus, elasticity is a tool for measuring the responsiveness of one variable to changes in another causative variable. 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 and all other conditions remain the same. For example, the factors that determine consumers' choice of goods mentioned in consumer theory include the price of the goods, the consumer's disposable budget for such goods, and the substitutes of the goods.^[3]

Within microeconomics, elasticity and slope are closely linked. For price elasticity, the relationship between the two variables on the x-axis and y-axis can be obtained by analyzing the linear slope of the demand or supply curve or the tangent to a point on the curve. When the tangent of the straight line or curve is steeper, the price elasticity (demand or supply) is smaller; when the tangent of the straight line or curve is flatter, the price elasticity (demand or supply) is higher.^[7]

Elasticity is a unitless ratio, independent of the type of quantities being varied. An elastic variable (with an absolute elasticity value greater than 1) responds more than proportionally to changes in other variables. A unit elastic variable (with an absolute elasticity value equal to 1) responds proportionally to changes in other variables. In contrast, an inelastic variable (with an absolute elasticity value less than 1) 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, for the suppliers of the goods, 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. In contrast, a raise from an initially high price might bring on a less-than-proportionate rise in quantity supplied.^[8]

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.^[9]

Definition

Elasticity is the measure of the sensitivity of one variable to another.^[10] A highly elastic variable will respond more dramatically to changes in the variable it is dependent on. The x-elasticity of y measures the fractional response of y to a fraction change in x, which can be written as

x-elasticity of y: ${\displaystyle \varepsilon ={\frac {\partial y/y}{\partial x/x}}}$

In economics, the common elasticities (price elasticity of demand, price elasticity of supply, and cross-price elasticity) all have the same form:

P-elasticity of Q: ${\displaystyle \varepsilon ={\frac {\partial Q/Q}{\partial P/P}}}$ if continuous, or ${\displaystyle \varepsilon ={\frac {\frac {Q_{2}-Q_{1}}{Q_{1}}}{\frac {P_{2}-P_{1}}{P_{1}}}}={\frac {\%\ {\mbox{change in quantity Q}}}{\%\ {\mbox{change in price P}}}}}$ if discrete.

${\displaystyle |\varepsilon |>1}$	elastic	Q changes more than P
${\displaystyle |\varepsilon |=1}$	unit elastic	Q changes like P
${\displaystyle |\varepsilon |<1}$	inelastic	Q changes less than P

Suppose price rises by 1%. If the elasticity of supply is 0.5, quantity rises by .5%; if it is 1, quantity rises by 1%; if it is 2, quantity rises by 2%.

Special cases:

Perfectly elastic: ${\displaystyle \varepsilon \rightarrow \infty }$; quantity has an infinite response to even a small price change.

Perfectly inelastic: ${\displaystyle \varepsilon =0}$; quantity does not respond at all to a price change.

Example of calculation

Suppose the demand curve is ${\displaystyle P=-2Q+4}$

Then

${\displaystyle Q={\dfrac {P-4}{-2}}={\dfrac {4-P}{2}}=2-{\dfrac {P}{2}}}$

${\displaystyle {\dfrac {\partial Q}{\partial P}}=-{\dfrac {1}{2}}}$

${\displaystyle {\dfrac {P}{Q}}=-2+{\dfrac {4}{Q}}}$

The price-elasticity of demand will be:

${\displaystyle \mathrm{ϵ<!--\; ϵ\; -->}=}$Zdroj:https://en.wikipedia.org?pojem=Elasticity_(economics)
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