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Elasticity Measure

Definition

Point Elasticity

Elasticity calculated at a particular point on a demand curve. Defined as the percent change in quantity resulting from a one percent change in price. Point elasticity is not reversible, i.e. it changes depending on which point is considered the starting point. In addition, if any of the starting parameter equals zero, point elasticity cannot be calculated.

Arc Elasticity

Elasticity calculated over a certain arc or section of the demand curve. Defined as the ratio of “change in quantity divided by average quantity” and “change in price divided by average price.” Unlike point elasticity, arc elasticity is reversible, and can be calculated when any of the parameters equals zero. For these reasons, arc elasticity is often calculated instead of point elasticity.

Semi-Elasticity

Elasticity that compares a percent change in one variable to a level change in the other. A level change could be a dollar increase in price, or a percentage point increase in the proportion insured. Semi-elasticity is often used in policy simulations.

Take-Up Elasticity

Elasticity that calculates the percent of the remaining uninsured that would take up coverage for a given price decrease. Instead of using the coverage rate (Q in the above formulas), take-up elasticity uses the uninsured rate, or the number of uninsured (U in this formula) to measure the outcome change. Take-up elasticity is often used to compare policy proposals designed to reduce the number of uninsured.

Formula [(Q1-Q0)/Q0]/[(P1-P0)/P0]

{ ( Q 1 - Q 0 ) / [ ( Q 1 + Q 0 ) / 2 ] } / { ( P 1 - P 0 ) / [ ( P 1 + P 0 ) / 2 ] }

[(Q1-Q0)/Q0]/(P1-P0) or

(Q1-Q0)/[(P1-P0)/P0]

[(U1-U0)/U0]/[(P1-P0)/P0]

B-1

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