Elasticity is the proportionate responsiveness of a second variable to an initial change in the first variable.
There are four different types of elasticites:
1. PED = Price Elasticity of Demand
2. YED = Income Elasticity of Demand
3. XED = Cross Elasticity of Demand
4. PES = Price Elasticity of Supply
Definitions and Calculations:
1. PED measures the extent to which the demand for a good changes in response to a change in the price of that good.
PED = % change in Qd / % change in P
2. YED measures the extent to which the demand for a good changes in response to a change in income.
YED = % change in Qd / % change in income
3. XED measures the extent to which the demand for good A changes in response to a change in the price of good B,
XED = % change in Qd of A / % change in P of B
4. PES measures the extent to which the supply of a good changes in response to a change in the price of that good.
PES = % change in Qs / % change in P