economics terms

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+blog(p)).  Differentiating using the chain rule yields

dq/dp = (b/p)exp(a+blog(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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Economics Terms

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
Economic Agent
Economic Model
Economics Textbook
Endogenous Technical Change
Exchange Rate
Expectations Hypothesis
Federal Funds (Fed Funds) Rate
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
Marginal Cost
Marginal Product
Marginal Utility
Optimizing Behavior
Perfect Competition
Phillips Curve
Price Elasticity
Producer Surplus
Production Function
Production Possibility Frontier
Put Option
Reservation Wage Rate
Risk Aversion
Structural Unemployment
Substitution Effect
Supply Curve
Taylor Rule
Technological Growth
Term Structure
Theory of the Consumer
Theory of the Firm
Unemployment Rate
Utility Function
Velocity of Money
Yield Curve