Elasticity
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Elasticity
Suppose we want to study the effects a price change has on the demand of a good. It is practical to do that in terms of percentages: If the price rises by one percent, how many percentages will demand change?
More generally, one can study how many percent any one variable changes when another variable changes by one percent. This is called elasticity. The types of elasticity that are used the most are price elasticity, income elasticity and cross-price elasticity.
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