Price Elasticity

The price elasticity of a quantity q with respect to a price p is the percentage change in q caused by a one percent change in p. Formally, this is

e = dq/dp · (p/q).

An intuitive version of this formula replaces the derivative with changes

e = ∆q/∆p · (p/q).

Reorganizing this yields

e = (∆q/q) / (∆p/p).

A common functional form is

log(q) = a + b · log(p).

or q = exp(a+b·log(p)). Differentiating using the chain rule yields

dq/dp = (b/p)·exp(a+b·log(p)) = (b/p)·q = b·(q/p).

The elasticity of q with respect to p is then b, which is constant.

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Arbitrage Pricing

Arbitrage Profit

Average Cost

Balance of Payments

Budget Constraint

Call Option

Concave Function

Consumer Surplus

Consumption Function

Convex Function

Deadweight Loss

Demand Curve

Econometrics

Economic Agent

Economic Model

Economics

Economics Textbook

Elasticity

Endogenous

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Equilibrium

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Expectations Hypothesis

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Fixed Exchange Rate

Floating Exchange Rate

Frictional Unemployment

Gross Domestic Product (GDP)

Income Effect

Income Elasticity

Indifference Curve

Interest Rate

Intertemporal Substitution

Jensen's Inequality

Macroeconomics

Marginal Cost

Marginal Product

Marginal Utility

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Monopoly

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Perfect Competition

Phillips Curve

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Put Option

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Risk Aversion

Structural Unemployment

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Supply Curve

Taylor Rule

Technological Growth

Term Structure

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Unemployment Rate

Utility Function

Velocity of Money

Widget

Yield Curve