Elasticity

Introduction: Elasticity is, just like marginality, a tool to measure changes. Whereas marginality is based on absolute changes, elasticity is based on relative or percentage changes.

Definition: The elasticity of a function $y(x)$ is denoted by $\epsilon=y'(x)\cdot \dfrac{x}{y(x)}$.

Property: For a percentage change $\%\Delta y$ of the function value $y(x)$ caused by a small percentage change $\%\Delta x$ of the variable $x$, we have $$\% \Delta y \approx \epsilon ~\% \Delta x.$$