Elasticity Theory content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.

1. Elasticity
Theory
Elasticities
Mr O’Grady

2. Elasticity Theory
Definition: Elasticity theory looks at the responsiveness of one variable to a change in
another
Equation:
Percentage change in one variable
Percentage change in another
=
%∆𝑿
%∆𝒀
Tip: For elasticity equations, it is always the ‘effect’ over the ‘cause’
E.g. PED =
%∆𝑸𝒅
%∆𝑷
Percentage Change Formula: %∆ =
Change in value
Original value
x 100
%∆ =
New value − original value
Original value
x 100
Elasticity Coefficient: the numerical measure of the responsiveness of one variable to
changes in another variable
E.g. If price increases by 5% demand might decrease by 15%
The price elasticity of demand coefficient is given by -15%/+5% = -3
Plus or minus: In elasticity theory we use the + and – sign to show the relationship
between two variables:
A + sign stands for a positive relationship e.g. if income increases (+) demand (for a normal good)
increases (+)
A – sign stands for a negative relationship e.g. if price increases (+) demand decreases (-)

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