Google
Wednesday 
August 20, 2014 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
Today's Index
Yesterday's Index
315.6

Help us compile the AmosWEB Free Lunch Index. Tell us about your last lunch.

Skipped lunch altogether.
Bought by another.
Ate lunch at home.
Brought lunch from home.
Fast food drive through.
Fast food dine in.
All-you-can eat buffet.
Casual dining with tip.
Fancy upscale with tip.

More About the Index
Least favorite number?

0.
1.
7.
9.
13.
99.

PAYROLL TAX: A tax levied on the wage earnings, or payroll, of workers. The most notable, if nothing else in terms of sheer dollar amount, is the Social Security tax.

Visit the GLOSS*arama


COEFFICIENT OF ELASTICITY:

A numerical measure of the relative response of one variable to changes in another variable. The coefficient of elasticity is used to quantify the concept of elasticity, including price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross elasticity of demand. The coefficient can be calculated using the simple endpoint or midpoint formulas or with more sophisticated calculus and logarithmic techniques.
The coefficient of elasticity captures the elasticity response between two variables, often with a single value. For example, in the analysis of the market, the law of demand relation between price and quantity is commonly indicated with a coefficient for the price elasticity of demand. A comparable coefficient for the price elasticity of supply is used to indicate the law of supply relation between price and quantity.

A General Formula

The general formula for the coefficient of elasticity between variables A and B is given as:

coefficient of
elasticity
=percentage change
in variable B
percentage change
in variable A
This general formula takes a more specific form for actual calculations. One of the more common specific forms used is the midpoint elasticity formula:
midpoint
elasticity
=(B2 - B1)
(B2 + B1)/2
÷(A2 - A1)
(A2 + A1)/2
The first term on the right-hand side of the equation is the percentage change in variable B. The second term is the percentage change in variable A. The individual items are interpreted as this: A1 is the initial value of A before any changes, A2 is the ending value after A changes, B1 is the initial value of B before any changes, and B2 is the ending value after B changes.

Four Common Elasticities

The most common applications for the coefficient of elasticity are price elasticity of demand and price elasticity of supply. Two other notable applications are income elasticity of demand and cross elasticity of demand.
  • Price Elasticity of Demand: On one side of the market is the price elasticity of demand. This is the relative response of quantity demanded to changes in the price. It is specified as the percentage change in quantity demanded to a percentage change in price.

  • Price Elasticity of Supply: On the other side of the market is the price elasticity of supply. This is the relative response of quantity supplied to changes in the price. It is also analogously specified as the percentage change in quantity supplied to a percentage change in price.

  • Income Elasticity of Demand: This is the relative response of demand to changes in income, or the percentage change in demand due to a percentage change in income. This elasticity quantifies the buyers' income demand determinant.

  • Cross Elasticity of Demand: This is the relative response of demand to changes in the price of another good, or the percentage change in the demand for one good due to a percentage change in the price of the other good. This elasticity quantifies the other prices demand determinant.
While these four elasticities tend to make the greatest use of the coefficient of elasticity, whenever an elasticity relationship between two variables needs to be quantified, the coefficient of elasticity is bound to come into play.

Follow the Signs

The positive and negative values resulting from calculating the coefficient of elasticity is generally important. The negative value for the price elasticity of demand indicates the law of demand and the positive value for the price elasticity of supply indicates the law of supply. However, the negative value of the demand elasticity is often ignored for comparison with supply elasticity and easy classification as perfectly elastic, relatively elastic, unit elastic, relatively inelastic, and perfectly inelastic.

In contrast, the positive and negative values for income elasticity of demand and cross elasticity of demand are important. A positive income elasticity indicates a normal good, and a negative value indicates an inferior good. A positive cross elasticity indicates a substitute good, and a negative value indicates a complement good.

Calculation Alternatives

The coefficient of elasticity can be calculated using several different techniques. In most introductory (classroom-type and textbook-type presentations), the coefficient of elasticity is calculated using the midpoint elasticity formula. While the midpoint formula is a relatively simple calculation, requiring only simply arithmetic, it often provides only an approximation of the actual elasticity of a relation, especially for a demand curve with a constant slope.

More sophisticated coefficient of elasticity calculations can be had using more sophisticated mathematical techniques, including calculus and logarithmic equations. Whereas the midpoint elasticity formula indicates an average elasticity over a segment of a curve, point elasticity is the elasticity at a given point on a curve.

<= CLOSED ECONOMYCOINCIDENT ECONOMIC INDICATORS =>


Recommended Citation:

COEFFICIENT OF ELASTICITY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2014. [Accessed: August 20, 2014].


Check Out These Related Terms...

     | midpoint elasticity formula | endpoint elasticity formula | arc elasticity | point elasticity |


Or For A Little Background...

     | elasticity | elastic | inelastic | price elasticity of demand | price elasticity of supply | income elasticity of demand | cross elasticity of demand |


And For Further Study...

     | elasticity and demand slope | elasticity and supply intercept | demand elasticity and total expenditure | elasticity alternatives | elasticity determinants |


Search Again?

Back to the WEB*pedia



State of the ECONOMY

Producer Price Index for Finished Goods
July 2014
215.2
UP 5.9% from July 2013 Soure: BLS.gov

More Stats

BLUE PLACIDOLA
[What's This?]

Today, you are likely to spend a great deal of time wandering around the shopping mall hoping to buy either one of those memory foam pillows or a remote controlled train set. Be on the lookout for broken fingernail clippers.
Your Complete Scope

This isn't me! What am I?

Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
"A successful man is one who can lay a firm foundation with the bricks others have thrown at him. "

-- David Brinkley, newsman

DJ
Dow Jones
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2014 AmosWEB*LLC
Send comments or questions to: WebMaster