What is elasticity?

• An elasticity is a measure of the sensitivity of one variable to another variable
• The percentage change that will occur in one variable to a percentage change in another variable

Point Function:

• Elasticity at a given point on a function and is given as follows
• The price elasticity of demand refers to the elasticity of a demand function Q(P), and can be expressed as (dQ/dP)/Q(P)/P or the ratio of the value of the marginal function (dQ/dP) to the value of the average function (Q(P)/P).

Arc Elasticity:

• The arc elasticity is elasticity of one variable with respect to another between two given points.It is the ratio of the percentage change of one of the variables between the two points to the percentage change of the other variable. It contrasts with the point elasticity, which is the limit of the arc elasticity as the distance between two points approaches zero an which hence is defined at a single point rather than for a pair of points  
•  Ed = (%DQ)/(%DFd)
• Es = (%DQ)/(%DFs)

Determinants of Elasticity

Supply: 

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

Demand:

• Price of own good
• Price of substitutes and complements
• Income of consumers
• Advertising and other promotional measures