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Elasticity (Economics)In economics, elasticity is the ratio of the incremental percentage change in one variable with respect to an incremental percentage change in another variable. Elasticity is usually expressed as a positive number (i.e., an absolute value) when the sign is already clear from context. Generalised cases Keeping in mind the example of price elasticity of demand, these figures show x=Q horizontal and y=P vertical. Figure 1: Illustrations of Perfect Elasticity and Perfect Inelasticity. Generalised cases of elasticity are frequently used in discussions that characterise circumstances for which detailed information is not available and/or irrelevant to the discussion. There are five such cases of elasticity. - E = 0 Perfectly inelastic. This special case of elasticity is represented in the figure to the right above. Any change in P will have no effect on Q.
- E < 1 Inelastic. The proportional change in Q is less than the proportional change in P.
- E = 1 Unit elasticity. The proportional change in one variable is equal to the proportional change in another variable.
- E > 1 Elastic. The proportional change in Q is greater than the proportional change in P.
- E = infinity Perfectly elastic. This special case of elasticity is represented in the figure to the left above. Change in P is zero, so elasticity is infinite.
Mathematical definition The general formula for elasticity (the "y-elasticity of x") is: |
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