Elasticity is the ratio of the proportional change in one variable to the proportional change in another. Economists use elasticities to summarize virtually all the quantitative impacts that are of interest to them. [1]

Elasticities allow comparisons across different contexts (e.g. regions or types of goods). They can be calculated either for a point or a range (or arc).

For a point, elasticity is calculated by this formula: [1]

Elasticity for a point formula

For a range (arc), it is calculated as ((Y2 – Y1)/(Y2+Y1))/2)) / ((X2 – X1)/(X2 + X1)/2)) or: [2]

Common Marketing Applications

Advertising elasticity (also known as advertising elasticity of demand or AED) is a marketing metric used to measure how changes in expenditures behind an advertisement or advertising campaign affect its ability to generate a measured response (e.g. sales). AED is calculated as a ratio by dividing the percentage change in measured response by the percent change in advertising expenditures. [3]

Price elasticity is the responsiveness of demand to a small change in price, expressed as a ratio of percentages. [1]


  1. Microeconomic Theory: Basic Principles and Extensions, Walter Nicholson, Christopher Snyder; 12th Ed., 2012, South-Western, CENGAGE Learning, p. 28.
  2. Microeconomic Theory: Basic Principles and Extensions, Walter Nicholson and Christopher Snyder, 13th Ed., 2024, South-Western, CENGAGE Learning.
  3. Universal Marketing Dictionary Project, 2024

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