Daily Speculations

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The Chairman
Victor Niederhoffer

09/27/2004
Price Elasticity

Price Elasticity, i.e. the % change in quantity demanded (or supplied) that will be induced by a % change in price is often used in economics.

Those who believe that all stocks are perfect substitutes would claim that a small change in price would induce an infinite change in quantity. Thus liquidity should be infinite.

While this isn't the case for stocks at all times, a small change in price should elicit much interest on the supply or demand side, and thus, the idea that there is a constant elasticity of demand or supply or a small one is very much against the idea that markets are competitive and very much against the real fact that sharp people are always looking for the edge.

Good discussions of price elasticity are contained on Google and most books on microeconomics, Pashigian's Price Theory and Applications is a favorite of mine.

See Dr. Alex Castaldo's essay on price elasticity>>>

For more of Victor Niederhoffer's writings, click here>>>