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elasticity


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The ratio between the proportional change in one variable and the proportional change in another. For two variables x and y the elasticity

ε=(dy/y)/(dx/x).

The concept is useful because comparisons of proportional changes are independent of the units in which the variables, such as price or quantity, are measured. As

(dy/y)/(dx/x)=d(log y)/d(log x),

elasticity equals the ratio of changes in the logarithms of the two variables. See also arc elasticity; point elasticity.

Subjects: Economics.


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