We have shown a general method of expressing elasticities using the expression below. This simply shows the ratio of the percentage change in two variables:

   There are a number of ways that elasticities can be computed depending on the level of study, or the application of interest. You may recall that when computing a percentage, one must be careful about the base used. For instance, a change between the quantities 90 and 100 is a 10% change using 100 as the base, but it is a change of more than 11% using 90 as the base.

   One method of resolving this dilemma is with an arc elasticity.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved