2.5.1—Concept of elasticity

Elasticity measures percentage responsiveness.

Elasticity compares a percentage change in one variable with a percentage change in another, so it is unit-free and comparable across scales.

Example

A 5% price rise causing a 10% fall in quantity gives |PED|=2, indicating elastic demand.

Write the percentage changes first, then interpret magnitude and sign in the decision context.

Elasticity is not the same as slope; percentage bases and the chosen interval matter.

Relative elasticity compares percentage quantity responses for a given percentage change in the causal variable. On demand diagrams drawn with the same axis scales and from a common point, a flatter curve is relatively more price elastic and a steeper curve relatively less elastic—but elasticity is not identical to visual slope, so calculate when data are provided.