Next post: cornflakes in the above example); if the elasticity is equal to , the good is said to be of unit elasticity (e.g. Rolls Royce cars in the above example); and if the elasticity is less than , the good is said to have ˜inelastic demand™. The importance of the measure of price elasticity of demand is that it tells us what will happen to total expenditure on a good if its price should change. Elasticity of substitution. The percentage change in the proportion in which two inputs are used, divided by the percentage change in the rate of technical substitution. That is, as we move from point to point along an isoquant the rate of technical substitution between the inputs will change, as will the proportion in which inputs are used.
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