Elasticity of substitution

Elasticity of substitution is the ratio of percentage change in capital-labour ratio with the percentage change in Marginal Rate of Technical Substitution.^[1] In a competitive market, it measures the percentage change in the two inputs used in response to a percentage change in their prices.^[2] It gives a measure of the curvature of an isoquant, and thus, the substitutability between inputs (or goods), i.e. how easy it is to substitute one input (or good) for the other.^[3]

^ Sydsaeter, Knut; Hammond, Peter (1995). Mathematics for Economic Analysis. Prentice Hall. pp. 561–562.
^ Bergstrom, Ted (2015). Lecture Notes on Elasticity of Substitution, p. 5. Viewed June 17, 2016.
^ de La Grandville, Olivier (1997). "Curvature and elasticity of substitution: Straightening it out". Journal of Economics. 66 (1): 23–34. doi:10.1007/BF01231465. S2CID 154023144.

[sydsaeter-1] Sydsaeter, Knut; Hammond, Peter (1995). Mathematics for Economic Analysis. Prentice Hall. pp. 561–562.

[bergstrom-2] Bergstrom, Ted (2015). Lecture Notes on Elasticity of Substitution, p. 5. Viewed June 17, 2016.

[grandville-3] La Grandville, Olivier (1997). "Curvature and elasticity of substitution: Straightening it out". Journal of Economics. 66 (1): 23–34. doi:10.1007/BF01231465. S2CID 154023144.

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