In
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
, output elasticity is the percentage change of output (
GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
or production of a single firm) divided by the percentage change of an input. It is sometimes called ''partial output elasticity'' to clarify that it refers to the change of only one input.
As with every
elasticity, this measure is defined locally, i.e. defined at a point.
If the production function contains only one input, then the output elasticity is also an indicator of the degree of
returns to scale. If the coefficient of output elasticity is greater than 1, then production is experiencing increasing returns to scale. If the coefficient is less than 1, then production is experiencing decreasing returns to scale. If the coefficient is 1, then production is experiencing constant returns to scale. Note that returns to scale may change as the level of production changes.
A different usage of the term "output elasticity" is defined as the percentage change in output per one percent change in ''all'' the inputs.
[Hirschey (2003) p. 238.] The coefficient of output elasticity can be used to estimate returns to scale.
The mathematical formula is
where x represents the inputs and Q, the output.
Multi-input-multi-output generalisations also exist in the literature.
Zelenyuk, V. (2013) "A Note on Equivalences in Measuring Returns to Scale," International Journal of Business and Economics 12:1, pp. 85-89. and see references therein
See also
* Elasticity (economics)
References
Elasticity (economics)
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