Question

What is the formula for calculating elasticity?

Short answer

$PriceElasticityofDemand=\frac{percentchangeinquantity}{percentchangeinprice}$.

Step-by-step solution

Step 1. Definition

Elasticity is a term used in economics to describe how the cumulative amount requested of a product or service changes as the price of that thing or service changes. If the quantity demand for a product varies more than proportionately as its price rises or lowers, it is said to be elastic.

Step 2. Explanation

Elasticity is a measure of responsiveness that is computed by dividing one variable's percentage change by another's percentage change.

For instance, price elasticity can be obtained by the ratio of change in quantity and change in price.

$Priceelasticity=\frac{\%Changeinquantity}{\%Changeinprice}$

Income elasticity can be obtained by the ration of change in quantity and change in income.

$Incomeelasticity=\frac{\%changeinquantity}{\%changeinincome}$