### Elasticity coefficient

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 )

If y is quantity demanded and x is price, then the ratio represents
the price-elasticity coefficient, which indicates the percentage
change in quantity as price changes 1%. If x is income then the
number becomes the income-elasticity coefficient.

Price elasticity is important in business to determine in a
given market whether an increase (or decrease) in prices will
generate an increase (or decrease) in revenues.

The following cases are possible for the price elasticity coefficient
(given that the relationship between quantity demanded and price
is expected to be negative, we focus on the absolute value of
the elasticity coefficient).

**Elasticity coefficient - Values and interpretation**

E > 1 - In this case price and revenues move in opposite
directions. An increase in prices generates an opposite change
in quantity demanded that more than offsets the change in price.
Therefore, revenues decrease.

E = 1 - Small changes in price do not modify revenues.

E < 1 - In this case price and revenues move in the same
direction. An increase (decrease) in prices generates an opposite
smaller change in quantity demanded (in percentage terms). Therefore,
revenues increase (decrease).