Elasticity

This chapter is entirely devoted to the concept of elasticity, a concept that figures prominently in almost every area of economic analysis. Two key elasticities in economics are examined in this chapter: the elasticity of supply and the elasticity of demand. The arc elasticity, which relates to discrete changes in the variables, and the point elasticity, which incorporates the derivative and relates to indefinitely small changes in the variables are considered. In the case of the demand function, the important relationship that exists between price, marginal revenue, and the elasticity of demand are identified and explored. Finally, it considers how the elasticity concept may be applied to other functions in economics.