ELASTICITY

ELASTICITY:
                         An elasticity is a measure of the sensitivity of one variable to another.
                                     Percentage change that will occur in one variable in response to a percentage change in another variable.

POINT ELASTICITY:
                         Elasticity at a given point on a function. Point elasticity shows elasticity at a single point on the demand curve instead of showing a line.

                                                  FORMULA

Point elasticity of demand = % change in quantity / % change in price

ARC ELASTICITY:
                          Arc elasticity is the elasticity of one variable with respect to another between two given points. It is used when there is no general function to define the relationship of two variables. Arc elasticity is also defined as the elasticity between two points on a curve. Arc elasticity is a elasticity over a given range of a function.

                                                  FORMULA

Elasticity of demand (Ed) = % DQ / % D Fd
Elasticity of supply   (Es)  = % DQ / % D Fs

DETERMINANTS OF ELASTICITY:

DEMAND:

• Price of own good
• Price of substitute or compliments
• Income of consumers
• Advertising or other promotional measures

SUPPLY:

• Flexibility of inputs
• Mobility of inputs
• Durability
• Time
• Ability to produce substitute inputs