TRANSPORT DEMAND ELASTICITIES. IN: HANDBOOK OF TRANSPORT MODELLING

An elasticity is a measure of responsiveness; it is the percentage change in one variable in response to a 1% change in another. In the case of demand, the own-price elasticity of demand is the percentage change in quantity demanded in response to a 1% change in its price. The own-price elasticity of demand is expected to be negative (i.e., a increase decreases the quantity demanded). Demand is said to be price elastic if the absolute value of the own-price elasticity is greater than unity (i.e., a change elicits a more that proportionate change in the quantity demanded). A price-inelastic demand has a less than proportionate response in the quantity demanded to a change (i.e., an elasticity between o and-1). Knowledge of demand is crucial information for all manner of transportation decisions, by individual firms, market analysts, or government agencies. Fortunately, empirical estimation procedures and computer software continue to improve, being both more sophisticated and user-friendly. This is important because accurate information is one of the preconditions for effective decision-making. One of the lessons from examining a great many demand studies is recognition that the value of elasticities in practice varies more widely than many people would expect.