Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Research, Quantitative Analysis, & Decision Science

Elasticity Coefficient - Explained

What is Elasticity Coefficient?

Written by Jason Gordon

Updated at April 16th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is an Elasticity Coefficient?How is Elasticity Coefficient Used? How to Interpret the Elasticity CoefficientAcademic Research on Elasticity Coefficient

What is an Elasticity Coefficient?

Price elasticity or elasticity coefficient is an economic term that shows the percentage change in quantity demanded due to a change in the price of goods and services.

Back to: RESEARCH, ANALYSIS, & DECISION SCIENCE

How is Elasticity Coefficient Used? 

Price elasticity is simply percentage change in quantity demanded divided by percentage change in price of goods and service. 

The formula for calculating price elasticity is as following; Ep= % change in quantity demanded(Q) / % change in price(P) 

Example: Price Elasticity Where Ep represents elasticity coefficient, %Q shows change in quantity demanded, and %P represents change in price of particular goods and services. 

Lets assume the price of oil increases by 60%, and the quantity demanded decreases by 20%, the elasticity coefficient will be; Ep = % Quantity (20%) / % Price (60%) = 0.33

How to Interpret the Elasticity Coefficient

1) If Ep > 1, demand is elastic. This means that a slight variation in price can produce greater change in quantity demanded. Therefore, hike in prices will negatively affect revenue, as the sales will drop with increase in price and vice versa. 

2) If Ep < 1, demand is inelastic for the particular good or service. It means quantity demanded is not affected significantly from variation in price of goods and services. In simple words, there is less change in quantity demanded due to price fluctuation. 

3) If Ep = 1, demand for goods is unit elastic. It means quantity demanded is fluctuated in proportion to price of goods and services. Thus, price changes have no effects on revenue of the firm.


elasticity coefficient

Was this article helpful?

Yes
No

Related Articles

  • Degrees of Freedom - Explained
  • Pearson Coefficient - Explained
  • Bonferroni Test - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand