MTP

Name: Mark Jason Pineda

Course: BS in Legal Management

Elasticity Coefficient Definition

Price elasticity or elasticity coefficient is an economic term that shows the percentage change in
quantity demanded due to a change in the price of goods and services.
A Little More on What is Elasticity Coefficient
Price elasticity is simply percentage change in quantity demanded divided by percentage change
in price of goods and service.
The formula for calculating price elasticity is as following;
Ep= % change in quantity demanded(Q) / % change in price(P)
Example: Price Elasticity
Where Ep represents elasticity coefficient, %ΔQ shows change in quantity demanded, and %ΔP
represents change in price of particular goods and services. Let’s assume the price of oil
increases by 60%, and the quantity demanded decreases by 20%, the elasticity coefficient will
be;
Ep = % Δ Quantity (20%) / % Δ Price (60%) = 0.33
How to Interpret the Elasticity Coefficient
1) If Ep > 1, demand is elastic. This means that a slight variation in price can produce greater
change in quantity demanded. Therefore, hike in prices will negatively affect revenue, as the
sales will drop with increase in price and vice versa.
2) If Ep < 1, demand is inelastic for the particular good or service. It means quantity demanded is
not affected significantly from variation in price of goods and services. In simple words, there is
less change in quantity demanded due to price fluctuation.
3) If Ep = 1, demand for goods is unit elastic. It means quantity demanded is fluctuated in
proportion to price of goods and services. Thus, price changes have no effects on revenue of the
firm.
References for Elasticity Coefficient
https://en.wikipedia.org/wiki/Price_elasticity_of_demand
https://www.investopedia.com/exam-guide/cfa-level-1/…/price-elasticity.asp
Academic Research on Elasticity Coefficient
o ●      State tax stability criteria and the revenue-income elasticity coefficient reconsidered,
Wilford, W. T. (1965). National Tax Journal, 18(3), 304-312. This paper explores the
adequacy criterion, which emphasis on the ability of given state tax structures to meet the
expanding needs of state social goods and services. This paper is primarily concerned
with a re-evaluation of the adequacy criteria, and with the techniques implemented in the
calculation of the adequacy of state revenue structures.
o ●      Factoring the elasticity of demand in electricity prices, Kirschen, D. S., Strbac, G.,
Cumperayot, P., & de Paiva Mendes, D. (2000). IEEE Transactions on Power
Systems, 15(2), 612-617. This paper explores consumers’ behaviours towards the
volatility of electricity prices. The main change in consumers’ behaviour is the
modification of their usage to reduce electricity costs.The main objective is to show the
effect that the market structure can have on the elasticity of the demand for electricity. A
26 system generator is taken into consideration for purpose of analysis.
o ●      The causal relationship between energy and GNP: an international comparison, Yu,
E. S., & Choi, J. Y. (1985). The Journal of Energy and Development, 249-272. This study
aims to find the relationship between GNP and energy, and the linkage between GNP and
the aggregate, as well as the disaggregate from energy consumption using samples from
five different nations. Results show that these findings are sensitive to samples. The study
thus goes on to present the marginal and average ratios of the GNP to the aggregate and
the disaggregate energy consumption of the five nations and evaluate their relevance and
validity.
o ●      The Preliminary Analysis of Change of  Elasticity Coefficient of Energy
Consumption and the Relevant Causes of China [J], Faqi, S. (2005). Statistical
Research, 5, 002. The author discusses in detail the change of elasticity coefficient of
energy consumption of the relevant causes of China since 1978, especially the negative
coefficient from 1997 to 1999 and the coefficient larger than one from 2002 to 2004.
o ●      A note on the Nerlove estimate of supply elasticity, Brandow, G. E. (1958). A note
on the Nerlove estimate of supply elasticity. Journal of Farm Economics, 40(3), 719-722.
This paper explores Nerlove estimate of supply elasticity. It aims to show that this
approach (Nerlove) acreage in any year represents the influence of past market market
prices, and other random factors.
o ●      Empirical properties of the elasticity coefficient in the constant elasticity of variance
model, Ang, J. S., & Peterson, D. R. (1984). Financial Review, 19(4), 372-380. This
paper explores the different evidence provided by various scholars on the properties of
the constant elasticity of variance process. Results shows that these evidence are not
sufficient to explain this concept properly. Thus, this article aims to provide further
explanation to this concept.
o ●      Disentangling the coefficient of relative risk aversion from the elasticity of
intertemporal substitution: An irrelevance result, Kocherlakota, N. R. (1990). The
Journal of Finance, 45(1), 175-190. This paper analyses the relationship between the
 elasticity of intertemporal substitution (EIS) and the coefficient of relative risk aversion
(CRRA) for homothetic time and state separable preferences. To achieve this purpose, the
author employs the annual data of the United States as a case study.
o ●      STIRPAT, IPAT and ImPACT: analytic tools for unpacking the driving forces of
environmental impacts, York, R., Rosa, E. A., & Dietz, T. (2003). Ecological
economics, 46(3), 351-365. This paper studies the specific forces driving human
alterations of the environment. The paper defines the causes of the absence of past
studies, and proposes a new model for working on this problem. The authors go on to
define three analytic formulations, and show the relationship, similar underpinning and
different uses of each tool.
o ●      On the elasticity of the real property tax, Kurnow, E. (1963). The Journal of
Finance, 18(1), 56-58. This article examines the economic concept of elasticity in terms
of property tax assessment.
o ●      The elasticity of the property tax base: Some cross-section estimates , Bridges, B.
(1964). Land Economics, 40(4), 449-451. This article examines the elasticity of property
tax assessment based upon various estimates taken from cross-sections of the population.
o ●      The contribution of publicly provided inputs to states’ economies, Garcia-Mila, T.,
& McGuire, T. J. (1992). Regional science and urban economics, 22(2), 229-241.  This
paper aims to back the theory of publicly provided infrastructure as an important element
of economic growth. To achieve this, the authors employs data from 1969 to 1983 of 46
contiguous states on publicly provided inputs on highway labor and education.