Ax Y

The AY/AX term in the point elasticity formula is the marginal relation between Y and X, and it shows the effect on Y of a one-unit change in X. Point elasticity is determined by multiplying this marginal relation by the relative size of X to Y, or the X/Y ratio at the point being analyzed.

Point elasticity measures the percentage effect on Y of a percentage change in X at a given point on a function. If eX = 5, a 1 percent increase in X will lead to a 5 percent increase in Y, and a 1 percent decrease in X will lead to a 5 percent decrease in Y. Thus, when eX > 0, Y changes in the same positive or negative direction as X. Conversely, when eX < 0, Y changes in the opposite direction of changes in X. For example, if eX = -3, a 1 percent increase in X will lead to a 3 percent decrease in Y, and a 1 percent decrease in X will lead to a 3 percent increase in Y.

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