highelasticity

Highelasticity is a term used in economic analysis to describe an unusually strong responsiveness of a dependent variable to changes in one or more driving variables. The concept is most commonly applied to price elasticity of demand and price elasticity of supply. In everyday usage, elasticities are considered elastic when their absolute value exceeds one; highelasticity refers to magnitudes that are notably large, often well above two or three, or in some theoretical discussions approaching infinite responsiveness in perfectly elastic models.

Calculation and interpretation: Elasticity is defined as the percentage change in the quantity demanded or supplied divided by the percentage change in the price (or other variable). For demand, PED = %ΔQd / %ΔP; for supply, PES = %ΔQs / %ΔP. Higher absolute values imply greater responsiveness. Highelasticity emphasizes that small price changes can trigger large quantity changes, with substantial welfare and revenue consequences.

Determinants and examples: The level of highelasticity depends on substitutes, necessities, share of income, time horizon, and market definition. In many markets, luxury goods or highly substitutable products exhibit high elasticity; short-run adjustments are often smaller than long-run adjustments, which can produce highelasticity over longer spans. In supply, firms with flexible capacity and low fixed costs may display higher elasticity.

Limitations and terminology: Highelasticity is an informal label; it does not designate a distinct formal measure in standard textbooks. Estimation uncertainty, changing definitions, and the need to specify the relevant market or timeframe can influence observed elasticity. The term is used descriptively rather than as a separate theory. See also Elasticity (economics).