Question

In economic research elasticities are a commonly used metric. An elasticity is:

1) i. a measure of the sensitivity of a variable to a change in another variable
2) ii. invariant (or insensitive) to the units in which variables are measured
3) iii. defined as the ratio of the percentage change in the affecting variable to the percentage change in the affected variable
4) iv. defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable

Answer 1

Elasticity in economic research measures the responsiveness of one variable to changes in another. It is a ratio of percentage changes and is independent of the units in which variables are measured, making it a valuable metric.

Step-by-step explanation:

Elasticity is an important concept in economic research as it provides a measure of how responsive one variable is to changes in another variable. It is a commonly used metric because it helps in understanding the relationships within different economic elements. Specifically, elasticity is defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable. This means, for example, that the income elasticity of demand would be calculated by dividing the percentage change in quantity demanded by the percentage change in income. Similarly, the wage elasticity of labor supply would be the percentage change in the quantity of hours supplied divided by the percentage change in the wage.