Authors libby rittenberg 231

Your job and the fiscal health of the public transit system are riding on
your making the correct decision. To do so, you need to know just how
responsive the quantity demanded is to a price change. You need a
measure of responsiveness.
Economists use a measure of responsiveness called elasticity. Elasticity is
the ratio of the percentage change in a dependent variable to a percentage
change in an independent variable. If the dependent variable is y, and the
independent variable is x, then the elasticity of y with respect to a change
in x is given by:
Equation 5.1
ey = % change in y
% change in x

A variable such as y is said to be more elastic (responsive) if the
percentage change in y is large relative to the percentage change in x. It is
less elastic if the reverse is true.
As manager of the public transit system, for example, you will want to
know how responsive the number of passengers on your system (the
dependent variable) will be to a change in fares (the independent
variable). The concept of elasticity will help you solve your public transit
pricing problem and a great many other issues in economics. We will
examine several elasticities in this chapter—all will tell us how responsive
one variable is to a change in another.

5.1 The Price Elasticity of Demand
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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