The term elasticity is found in the analysis of changes in demand, supply, the study of the economic situation of the company. The coefficient of elasticity indicates how much one factor will change with an increase or decrease in the value of another by 1%.
Instructions
Step 1
Apply the method of finding the coefficient of elasticity along an arc if you need to measure it between points on the supply or demand arc. You will need information such as initial and new prices, initial and final volumes. Divide the volume delta by the price delta. To find the delta, you need to subtract the initial value from the final value, and then divide the result by the average value of the indicator, which can be obtained by dividing the sum of two values by two.
Step 2
Use the point elasticity method when you have a supply or demand function and you know the initial price and demand levels. Thus, you will be able to calculate the relative change in supply or demand, even with the slightest variation in the price level or other parameter. You need to multiply the derivative of the function by the quotient of the market price to the volume of supply or demand at that price.
Step 3
Remember that the value of elasticity does not depend on the units in which you measure the given factors, because this is an immeasurable value. In addition, the price elasticity of demand and the price elasticity of supply are indicators that are inversely proportional. In the course of economic research, a direct relationship is observed, in which the growth of one indicator causes an increase in another, and the opposite. The first option is represented by the elasticity of demand for products with respect to consumer income, and the second group includes the elasticity of demand with respect to price.
Step 4
Explore other types of elasticity. These include, for example, an absolute one, when a negligible change in one indicator significantly increases or decreases the value of another. Demand or supply are elastic when the growth rate of their parameter is higher than the change in other factors. If the rates of growth or decline are the same, there is a unit elasticity. When the growth rate of the factor under study is below the changing values, it is inelastic supply or demand. Please note that changing market elements may not affect the value being studied in any way. Then there is absolute inelasticity.
