Applications
The concept of elasticity has an extraordinarily wide range of applications in economics. In particular, an understanding of elasticity is fundamental in understanding the response of supply and demand in a market.
Some common uses of elasticity include:
- Effect of changing price on firm revenue. See Markup rule.
- Analysis of incidence of the tax burden and other government policies. See Tax incidence.
- Income elasticity of demand can be used as an indicator of industry health, future consumption patterns and as a guide to firms investment decisions. See Income elasticity of demand.
- Effect of international trade and terms of trade effects. See Marshall–Lerner condition and Singer–Prebisch thesis.
- Analysis of consumption and saving behavior. See Permanent income hypothesis.
- Analysis of advertising on consumer demand for particular goods. See Advertising elasticity of demand
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