what is meant by a slope coefficient and an elasticity coefficient? what is the
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what is meant by a slope coefficient and an elasticity coefficient? what is the relationship between the two.
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5 answers Top Subjects: Economics, Accounting
The slope coefficient line (b) represents the rate of change in y as x changes. Because y is dependent on x, the slope describes the predicted values of y given x.
The elasticity coefficient is a number that indicates the percentage change that will occur in one variable (y) when another variable changes one percent. It is defined as the ratio: ( %change in y ) / ( %change in x ) It is a numerical measure of the relative response of one variable to changes in another variable.
The general formula for the coefficient of elasticity between variables A and B is given as:
coefficient of
elasticity
=
percentage change
in variable B
percentage change
in variable A
Slope measures the steepness or flatness of a line in terms of the measurement units for price and quantity. Elasticity measures the relative response of quantity to changes in price. In addition, elasticity considers relative, or percent, changes, whereas slopes consider absolute unit changes. For example, price elasticity of demand is defined as the percent change in quantity demanded divided by the percent change in price.A percent change is just an absolute change (i.e. final minus initial) divided by the initial value, so a percent change in quantity demanded is just the absolute change in quantity demanded divided by quantity demanded, and a percent change in price is just the absolute change in price divided by price. Some simple arithmetic then tells us that price elasticity of demand is equal to the absolute change in quantity demanded divided by the absolute change in price, all times the ratio of price to quantity. The first term in that expression is just the reciprocal of the slope of the demand curve, so the price elasticity of demand is equal to the reciprocal of the slope of the demand curve times the ratio of price to quantity. This comparison highlights the fact that it's important to specify the range of prices over which elasticity is calculated, since elasticity is not constant even when the slope of the demand curve is constant, as is the case with demand curves that are represented by straight lines. It is possible, however, for a demand curve to have constant price elasticity of demand, but these types of demand curves will not be straight lines and will thus not have constant slopes.
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Complete the following sentences:
In the double-log model the slope coefficient measures . . .
In the lin-log model the slope coefficient measures . . .
In the log-lin model the slope coefficient measures . . .
Elasticity of Y with respect to X is defined as . . .
Price elasticity is defined as . . .
Demand is said to be elastic if the absolute value of the price elasticity is . . . , but demand is said to be inelastic if it is . . .
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coefficient of
elasticity
=
percentage change
in variable B
percentage change
in variable A
Explanation / Answer
1. Price elasticity can be defined as teh responsiveness of teh quantity demanded to changes in price level. Elasticity is always measured over a price change.
2. Demand is said to be elastic if the absolute value of teh price elasticity is >1, but demand is said to be inelastic if it is zero (0)
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