This tool computes the responsiveness of one variable to a change in another, using the average percentage change in both variables. For instance, it could calculate how a price change affects the quantity demanded or supplied, providing a more consistent measure of responsiveness than traditional point elasticity calculations, especially over larger changes. A typical application would be measuring the price elasticity of demand between two price points and their corresponding quantities.
Its advantage lies in producing the same elasticity value regardless of the direction of the change, resolving the asymmetry problem encountered with other methods. This characteristic makes it a valuable tool for economic analysis, market research, and business decision-making, offering a robust measure of sensitivity in various scenarios. Historically, the development of this method addressed the limitations of earlier approaches, contributing to a more rigorous understanding of economic relationships.
