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Stats Notes 6: Elasticity Theory and Application

Question: What is elasticity? How do we understand elasticity in layman language? How to derive the elasticity formula for different models? How do we apply elasticity?

Answer: Elasticity comes from economics. For instance, if the price of some product is increased by 1%, then what's the corresponding percentage change for the demand of that product in the market, say, we have x% change of demand, then the price elasticity of demand is x.

In the following slides, we provide the elasticity formulas for different regression models; meanwhile, we also provide the details of how to derive the formula.
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