Chapter 12: Transport Demand Elasticities

Elasticity is a measure of responsiveness, the percentage change in one variable in response to a one percent change in another. In the case of demand, the own-price elasticity of demand is the percentage change in quantity demanded in response to a one percent change in its price. The own-price elasticity of demand is expected to be negative, i.e., a price increase decreases the quantity demanded. Demand is said to be “price-elastic” if the absolute value of the own-price elasticity is greater than unity, i.e., a price change elicits a more than proportionate change in the quantity demanded. A “price-inelastic” demand has a less than proportionate response in the quantity demanded to a price change, i.e., an elasticity between 0 and −1.