Elasticity (economics)

In economics, elasticity is the measurement of the proportional change of an economic variable in response to a change in another. It shows how easy it is for the supplier andconsumer to change their behavior and substitute another good, the strength of an incentive over choices per the relative opportunity cost. Elasticity indicates responsiveness. In mathematics, x-elasticity of y measures the responsiveness/fractional change of y with respect to x, i.e. how much y changes fractionally when x changes fractionally.perfect P-elasticity of Q: Q changes while P = constantperfect P-inelasticity of Q: P changes while Q = constantConventional demand curve (downwards linear slope), with its elasticityExample of demand curve with constant elasticityExamples of supply curves, with different elasticityExamples of a non-linear supply curve with its elasticityThe price elasticity of supply measures how the amount of a good that a supplier wishes to supply changes in response to a change in price. In a manner analogous to the price elasticity of demand, it captures the extent of horizontal movement along the supply curve relative to the extent of vertical movement. If the price elasticity of supply is zero the supply of a good supplied is 'totally inelastic' and the quantity supplied is fixed.The concept of elasticity has an extraordinarily wide range of applications in economics. In particular, an understanding of elasticity is fundamental in understanding the response of supply and demand in a market.In some cases the discrete (non-infinitesimal) arc elasticity is used instead. In other cases, such as modified duration in bond trading, a percentage change in output is divided by a unit (not percentage) change in input, yielding a semi-elasticity instead.