Answer to Question #134522 in Microeconomics for Aditya

Question

What is elasticity of substitution?

Answer 1

Elasticity of substitution is simply the responsiveness of buyers of a certain good or service to the price changes in its substitutes. Also , it is measured as ratio of proportionate change in relative demand for like two goods to proportionate change in their relative prices.. Its important because it shows to what extend two goods or service can be substitute for one another.