Elasticity

Elasticity measures the responsiveness of one variable to changes in another. In economics, it commonly expresses a percentage change in one quantity relative to a percentage change in another.

Price elasticity of demand: The percentage change in quantity demanded divided by the percentage change in price. It is the standard case of measuring how one economic variable responds to another.
Total revenue test: A rule using changes in price and total revenue to infer whether demand is elastic or inelastic. It connects demand responsiveness to whether a price rise increases or reduces sellers’ revenue.
Percentage change: A change in a quantity expressed as a proportion of its initial or reference value. Elasticity compares proportional changes rather than absolute-unit changes.
Slope: A measure of how much one variable changes per unit change in another. Slope uses absolute changes, whereas elasticity uses percentage changes.
Income elasticity of demand: The percentage change in quantity demanded divided by the percentage change in consumer income. It applies the same responsiveness measure to income rather than price.
Tax incidence: The distribution of a tax burden between buyers and sellers, shaped by their relative market responsiveness. Relative demand and supply elasticities determine who bears more of a tax.
Demand curve: A graph or relationship showing how quantity demanded varies with price, holding other factors constant. Elasticity describes responsiveness along or across this relationship.
Sensitivity analysis: The study of how changes in model inputs affect its outputs. It is broader than elasticity and need not use proportional changes.
Cross-price elasticity of demand: The percentage change in demand for one good divided by the percentage change in another good’s price. It reveals how demand for one product responds to a related product’s price.
Deadweight loss: The loss of total surplus caused when a market distortion prevents mutually beneficial trades. Elasticities influence how much trade and surplus a tax or price control eliminates.

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