# Questions tagged [elasticity]

Elasticity is the measurement of how responsive an economic variable is to a change in another.

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### Equi Marginal Utility [closed]

The law of equi-marginal utility states that if there are two goods X and Y in the consumption basket, then, in equilibrium, MUx/Px = MUm = MUy/Py, where MUm is the marginal utility of money. Ceteris ...
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### Set the price to maximize profits

Suppose there's a patented and perishable product that all people will need sometime in their lives which they would rationally give all the resources they could access to purchase. How would a seller ...
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### Implications of assuming quadratic utility; the search for an alternative

In this answer, I was pointed to the utility function $$U(c, y) = c - \frac{c^2}{2} + y$$ with corresponding demand function $$c(p) = 1 -p$$ which is inelastic for $p < 1/2$. Something that ...
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### Log-Log Regression versus Delta-Delta Regression

I am trying to estimate the self- and cross-price elasticities of demand for Alaska (AS) and Southwest (WN) on a given route. I have price in quantity data that varies over time. Which of the ...
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### Why is land considered fixed if the supply of land for a particular use is not fixed?

There is a very strong consensus that the supply of land is fixed or perfectly inelastic. However, I found this article by Wyatt (1994) that contests this view: To begin with, the conventional wisdom ...
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### Modified Elasticity Calculation

I have 5 yrs worth of price and unit sold data for retail products. Generally these products have MRP and sold at some discount. I want to create elasticity curve for these products. However over a ...
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### Ideal timeframe to consider for elasticity curve

I have transaction data for luxury retail domain. It is roughly 5 years of transaction data which provides week / month level details in terms of number of units being sold at a given price point. I ...
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### Assuming a fall in price, does consumer surplus fall more with elastic or inelastic price elasticity of demand

I know that the total consumer surplus is higher for more inelastic P.E.D values, which makes intuitive sense: People would be willing to pay more than they actually do for inelastic goods e.g. a ...
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### What kind of data should I use for estimating price elasticity of demand?

I’m planning to use the log-log model to estimate price elasticity of demand $$\ln(Q) = \beta_0 +\beta_1\ln(P)$$ I’m already aware of its drawbacks and that there are other estimation methods, but I ...
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### How do you calculate price elasticity of aggregate demand?

Price elasticity of demand is defined as $\frac{\delta q}{q}\frac{p}{\delta p}$. If aggregate demand $q = q_1 + \ldots + q_n$, then $\delta q = \delta q_1 + \ldots + \delta q_n$, and the price ...
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### Modeling Approach to Adjust linear Elasticity Effect in Pricing Optimization

I am working on a pricing optimization model for a product where the price depends on the competition as well as our costs. The current formulation of the model is: ...
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### Is cross-price elasticity a Cobb-Douglas production function?

This may seem like a silly question... Well... I guess, because it really is... But I have just realized that the intuition behind both principles may not be mutually exclusive. Consider we would like ...
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### Example of a utility function which yields inelastic demand function

I am looking for a example of a utility function which, when the utility maximisation problem is solved, results in an inelastic demand. The standard examples in textbooks always seem to have unitary ...
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### Why don't producers of goods with inelastic demand refuse to increase supply?

I'm reading Paul Samuelson's Economics (19th edition, 2009). In page 71, the Paradox of the Bumper Harvest is introduced. According to the paradox, an increase in food supply from a good harvest ...
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### Is the price elasticity of a product equal to the sum of all cross-price elasticities of demand for that product? Why?

I encountered the claim stated in the title, without it being further substantiated. I'm looking for some elaboration on it, assuming it's true. Also on an intuitive level.
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### Why is the demand curve inelastic for essential items?

Elasticity refers to the percent change in quantity with respect to the percent change in price. Elastic means that the percent change in quantity is greater than the percent change in price. ...
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### Price Elasticiyt of Demand & (AR - MR)

I have the following question: Using this equation: $MR = P(1+\frac{1}{ε})$ and the attached graph. How does the vertical distance between the demand curve and MR curve at a given level of output ...
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### Different methods to calculate price elasticity

I was testing different methods to calculate price elasticities in simple theoretical scenarios and I encountered a seemingly discrepancy between two very popular methodologies. Methodology 1: use the ...
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### Optimised Pricing with Static Price Data

If you have price data going back several years, but the price is constant, is there any way to work out the elasticity of demand (or dynamically optimise prices another way). The sales volume is in ...
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### Truth behind Samuelson's statement against elasticities

I found the following statement by Paul Samuelson: Through the influence of Alfred Marshall economists have developed a fondness for certain dimensionless expressions called elasticity coefficients. ...
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### Price Elasticity with real monthly data

Is it possible to calculate the Price elasticity based on the following set of data? I tried with the formulas widely available, but looks like the results are not correct.
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