Details

Elasticity is a function that can be built from an arbitrary function . Elasticity at a certain point is usually calculated as

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We have chosen , as it has two inflection points (local minimum and local maximum), and also sections that slope up and down. As long as we have four terms on the right-hand side of the above expression, elasticity can be expressed in many forms. One interesting form, from an economic viewpoint, is the ratio of slopes of tangent and average curves that are shown on the upper plot:

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The bottom plot reflects all three functions: average , tangent and elasticity itself for a given . For each , the elasticity function defines elasticity values for each point of . Notice that the average line in our example is always non-negative. At inflection points the tangent is zero, as is the elasticity. Elasticity is negative for the downward-sloping section of .