Your job and the fiscal health of the public transit system are riding on your making the correct decision To so, you need to know just how responsive the quantity demanded is to a price change You need a measure of responsiveness Economists use a measure of responsiveness called elasticity Elasticity is the ratio of the percentage change in a dependent variable to a percentage change in an independent variable If the dependent variable is y, and the independent variable is x, then the elasticity of y with respect to a change in x is given by: Equation 5.1 ey = % change in y % change in x A variable such as y is said to be more elastic (responsive) if the percentage change in y is large relative to the percentage change in x It is less elastic if the reverse is true As manager of the public transit system, for example, you will want to know how responsive the number of passengers on your system (the dependent variable) will be to a change in fares (the independent variable) The concept of elasticity will help you solve your public transit pricing problem and a great many other issues in economics We will examine several elasticities in this chapter—all will tell us how responsive one variable is to a change in another 5.1 The Price Elasticity of Demand Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 231