Elasticity A measure of the degree of responsiveness of one variable to changes in another. For example, the price elasticity of demand for a particular good is the relative degree of responsiveness of the quantity demanded to relatively small changes in its price. On a supply-demand graph drawn as normally presented in textbooks, elasticity of demand can be very roughly assessed simply by eyeballing the steepness of the slope of the demand curve: a very steeply sloping demand curve (that is, almost straight up and down) indicates that a given percentage increase in price will induce only a comparatively smaller percentage decrease in the quantity of the commodity that potential consumers wish to buy ("relatively inelastic demand"); while a very gently sloping demand curve shows that a given percentage increase in price will produce a still larger percentage decrease in quantity demanded ("relatively elastic demand"). Show Similarly, price elasticity of supply measures the degree of proportionality with which the quantity of a commodity offered for sale on the market changes in response to a given change in the going price; income elasticity of demand measures the responsiveness of consumer demand for a commodity to changes in consumer incomes; and so on. Presumably the term "elasticity" was originally adopted because it enables us to compare how much several dependent variables "stretch" in response to the same degree of "pulling force" from the same independent variable. When a numerical estimate is required for a precise prediction of the consequences of a particular price change for the quantity of a good likely to be traded, elasticity is usually defined by the percentage change in the dependent variable (for example, quantity demanded) divided by the associated percentage change in the independent variable (for example, price). Ignoring the plus or minus sign, an elasticity greater than 1 is referred to as relatively elastic and an elasticity less than 1 is referred to as relatively inelastic. (An elasticity precisely equal to 1 is termed unit elasticity.) For relatively small changes, this is practically equivalent to the calculus expression below that includes the slope of the curve and the values of the independent and dependent variables at the point on the curve in question where elasticity is being assessed:
where X is the independent variable (price, income, etc.) and Y is the dependent variable (quantity demanded, quantity supplied, etc). (Notice that the presence of X and Y as well as dX and dY in the expression makes the elasticity vary based not only on the general slope of the curve but also based on the particular part of the curve that is under consideration -- the elasticity is not generally identical for each and every segment of a given demand or supply curve.) As we try to illustrate throughout this course, a surprising amount of detail about the general direction of the economic consequences of particular kinds of events or changes in public policy can be predicted by deduction from very broad generalizations like the laws of supply and demand. But when much more precise numerical predictions of consequences are desired, more detailed information is needed about the exact parameters defining the supply and demand schedules in the particular markets concerned at the relevant time. Statistical techniques for estimating numerical values for particular real world supply and demand functions (and other economic relationships) and especially for measuring their long-term and short-term elasticities are at the heart of most applied economic research done by both government economists and economists employed by business firms in the private sector. To illustrate the practical importance of the elasticity concept, consider the following example:
Some generalizations about what seems to determine price-elasticities: Goods that are less urgently or specifically desired by consumers (often because there are very many other close substitutes readily available on the market) generally would be expected to display higher price elasticity of demand -- such as, for example, different types of breakfast cereals. "Items of necessity" that are used constantly in normal daily life and which have only very imperfect substitutes tend to display less price- elasticity of demand -- for example, salt, matches, or soap in our society. "Luxury" items, by definition, are goods that people do not believe they really have to have "at any price," and the price elasticity of demand for such goods therefore tends to be quite high -- making it difficult to "soak the rich" very effectively by means of luxury taxes. Heroin, cocaine, alcohol, tobacco, gambling devices and other addictive or quasi-addictive products would be extreme examples of goods for which we would expect the demand to be very price-inelastic (which is one of the reasons why "sin taxes" are so often very lucrative for governments to impose -- people are generally very determined to keep right on sinning at almost any price!). "Big ticket" items whose prices represent a hefty share of most customers' monthly incomes (such as automobiles, motorboats, washing machines or TV sets) very often display relatively high price elasticity of demand because even a relatively small percentage increase in price still means "big bucks" and may put purchase beyond the financial reach of significant numbers of potential customers. It should also be kept in mind that the length of the time period under consideration nearly always makes a big difference in the degree of elasticity exhibited by buyers and sellers -- that is, people (and business organizations) often have serious practical difficulties or psychological rigidities in adjusting their buying or selling behavior to price changes on very short notice, but then as time goes on, more and more extensive adaptation to the new situation is likely to take place. As a result, the elasticities of long-term supply and long-term demand curves are nearly always much greater than the elasticity of short-term supply and demand curves for the same goods and services. Is a measure of the responsiveness of consumers to a change in a product's cost?The most widely used measure of consumer response to price changes is price elasticity (Schindler, 2012), which is the percentage change in demand for a one-percent change in price. Price elasticity is the numerical representation of consumer's price sensitivity towards a particular brand (or product).
What is the measure of responsiveness of demand to the changes in price called?A measure of the responsiveness of quantity demanded to changes in the price of a related good is known as cross elasticity of demand. Cross elasticity of demand is calculated by dividing the proportionate change of quantity demanded of one commodity by the proportionate change of price of another commodity.
What is a measure of responsiveness?Many studies use effect sizes as a measure of responsiveness, calculated as the mean change score in a group of patients divided by the standard deviation of the baseline scores or the SD of the change scores.
What is the measure of responsiveness in economics?The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes.
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