Coefficient of elasticity

Constant consideration of supply and demand makes it possible to identify general directions for changing these concepts under the influence of such a factor as price. It is these studies and allowed to formulate a basic economic law - demand and supply. To specify the influence of price or any other factors, it became necessary to create a universal quantitative indicator (the elasticity of supply), which would compare the price increase with the reduction in the volume of demand for the goods. This term would give an answer to the question - this reduction will occur quickly or slowly, strongly or weakly.

In the economic theory, the elasticity coefficient appeared late, but it developed quite rapidly. Elasticity in the general concept came to the economy from the natural sciences, and for the first time this term was applied to the scientists of the 17th century by R. Boyle in the study of gases and their properties. In the economic literature, the notion of "elasticity" was introduced in the 19th century by A. Marshall from Great Britain, followed by the development of this theory by J. Hicks (also from Great Britain) and P. Samuelson from the United States.

In itself, the term "elasticity" is responsible for the proportion of the response of one variable, depending on the change of the other, but having a certain relationship with the first value.

Applying this indicator to various economic processes, it can be noted that there are many methods of illustrating the ability of one economic variable to react to certain changes in another. However, the most expedient can be considered a unified choice of units - the use of the measurement method in percent.

In quantitative terms, elasticity is calculated using the elasticity coefficient.

Thus, the elasticity factor is an indicator in a numerical expression that displays the percent change in one variable as a result of a change of one percent the other. The boundaries of this indicator change are from zero to infinity.

With the introduction of elasticity in economic analysis, there are additional opportunities, namely:

- coefficient of elasticity is a statistical tool that has been used for a long time in the marketing research field;

- Elasticity allows, in addition, to measure one or another economic process, but also to explain the final result.

In the modern economy there is not a single field of activity where the elasticity coefficient could not be used. For example, the theory of economic cycles, the analysis of supply and demand, economic expectation, etc.

As a general definition of elasticity, the expression represented by dividing the relative increment of a function by the relative increment of the independent variable is adopted.

There is also another kind of the considered indicators - arc elasticity, which is an approximate degree of the reaction of demand or supply to the corresponding changes in income, price and other factors.

Arc elasticity can be defined in the form of average elasticity or elasticity, located in the middle of the chord, which connects two points. In fact, the consideration takes into account the average values of such economic indicators as price, demand, supply.

Arc elasticity is considered in the presence of relatively large changes in prices or revenues. The coefficient of arc elasticity, according to D. Rubinfeld and R. Pindike, is always between two indicators of conventional elasticity for high and low prices.

In other words, in the case of minor changes in the estimated values, point or conventional elasticity is calculated, and for large elasticity, arc elasticity is calculated.