Definition – What is elasticity?
In economics, elasticity is the measurement of how much one thing (such as quantity) changes when another thing (such as price) changes.
Formula – How to calculate elasticity
Elasticity = % Change in Quantity / % Change in Price
% Change in Quantity = (Quantity End – Quantity Start) / Quantity Start
% Change in Price = (Price End – Price Start) / Price Start
500 units are produced at the start and 600 at the end. In the same period, cost to produce goes from $20 to $25.
% Change in Quantity = (600 – 500) / 500 = 100 / 500 = 0.20
% Change in Price = ($25 – $20) / $20 = $5 / $20 = 0.25
Elasticity = 0.20 / 0.25 = 0.80
Therefore, elasticity is 0.80.
Sources and more resources
- Khan Academy – Elasticity Tutorial – Part of a large course on economics, this page is an introduction to different types of elasticity.
- Wikipedia – Elasticity (economics) – An overview of the concept of elasticity. It includes examples of different types of elasticity.
- Dr. Emma Hutchinson – Principles of Microeconomics – 4.1 Calculating Elasticity – Part of a textbook on microeconomics. How to calculate elasticity.
- Lumen Learning – Elasticity – Part of a larger course on microeconomics. This page summarizes elasticity with a number of examples.