Interpreting economic data: estimating the elasticity of demand

The concept of elasticity of demand is one of the most important in economics. At its most general level the elasticity of demand measures the percentage response in demand to a given percentage change in some other variable of interest. For example, we are often interested in the response of demand to changes in the price of the good concerned price – the own price elasticity of demand – but we may also be interested in the response to changes in income – the income elasticity of demand – or changes in the prices of other goods – the cross price elasticity of demand. In a recent article for the Economic Review, Mark Russell shows how useful the concept of elasticity of demand can be for both economists and the business community. He also shows how demand elasticities can be calculated and gives examples of how they might be used in practice...