#### 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 (E)

- 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).