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In economics, the price elasticity of demand refers to the elasticity of a demand function Q(P), and can be expressed as (dQ/dP)/(Q(P)/P) or the ratio of the value of the marginal function (dQ/dP) to the value of the average function (Q(P)/P). This relationship provides an easy way of determining whether a demand curve is elastic or inelastic ...
An example in microeconomics is the constant elasticity demand function, in which p is the price of a product and D(p) is the resulting quantity demanded by consumers.For most goods the elasticity r (the responsiveness of quantity demanded to price) is negative, so it can be convenient to write the constant elasticity demand function with a negative sign on the exponent, in order for the ...
Elasticity of scale or output elasticity measures the percentage change in output induced by a collective percent change in the usages of all inputs. [20] A production function or process is said to exhibit constant returns to scale if a percentage change in inputs results in an equal percentage in outputs (an elasticity equal to 1).
The SI unit for elasticity and the elastic modulus is the pascal (Pa). This unit is defined as force per unit area, generally a measurement of pressure, which in mechanics corresponds to stress. The pascal and therefore elasticity have the dimension L −1 ⋅M⋅T −2.
A good with an elasticity of −2 has elastic demand because quantity demanded falls twice as much as the price increase; an elasticity of −0.5 has inelastic demand because the change in quantity demanded change is half of the price increase. [2] At an elasticity of 0 consumption would not change at all, in spite of any price increases.
Isoelastic utility for different values of . When > the curve approaches the horizontal axis asymptotically from below with no lower bound.. In economics, the isoelastic function for utility, also known as the isoelastic utility function, or power utility function, is used to express utility in terms of consumption or some other economic variable that a decision-maker is concerned with.
If the elasticity is high, then large changes in consumption are not very costly to consumers and, as a result, if the real interest rate is high, they will save a large portion of their income. If the elasticity is low, the consumption smoothing motive is very strong and because of this consumers will save a little and consume a lot if the ...
Wire-grid Cobb–Douglas production surface with isoquants A two-input Cobb–Douglas production function with isoquants. In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and ...