The History of Price Elasticity: How Economists Learned to Measure Responsiveness

1838: Cournot Writes Demand as a Function

The French mathematician and economist Antoine Augustin Cournot published Researches into the Mathematical Principles of the Theory of Wealth in 1838. In it he treated the quantity sold of a good as a mathematical function of its price and analyzed how a monopolist would choose price to maximize revenue. That step — writing demand as a function rather than describing it in words — made it possible to ask a precise question that had previously been vague: by how much does quantity respond when price changes? Cournot did not use the word elasticity or define the modern ratio, but the calculus he introduced is exactly what elasticity later formalized. His book was largely ignored for decades before economists rediscovered it.

1890: Marshall Names It

Alfred Marshall introduced the term elasticity of demand in his Principles of Economics (1890), defining it as the responsiveness of quantity demanded to a change in price. Crucially, Marshall expressed it as a ratio of proportional changes — percentage change in quantity divided by percentage change in price — rather than as a slope. That choice makes the measure independent of the units used, so the responsiveness of gasoline demand in gallons can be compared directly with the responsiveness of electricity demand in kilowatt-hours. Marshall also recognized that elasticity varies along a straight-line demand curve rather than being a single fixed number for the whole curve, a point that still trips up students.

The Interwar Years: Elasticity Enters Applied Theory

Once elasticity had a definition, economists began building results on top of it. Frank Ramsey's 1927 article "A Contribution to the Theory of Taxation" showed that raising a given amount of revenue with the least distortion generally means taxing goods more heavily where demand is less responsive to price — the origin of what became known as Ramsey pricing and the inverse-elasticity rule. In the 1930s, work on imperfect competition, including Joan Robinson's The Economics of Imperfect Competition (1933), made explicit the tight relationship between the elasticity of demand facing a firm and its marginal revenue, and therefore its pricing power.

The 20th Century: Measuring Real Elasticities

The rise of econometrics turned elasticity from a concept into a measured quantity. Henry Schultz's The Theory and Measurement of Demand (1938) was a landmark attempt to estimate demand curves for agricultural commodities from actual data. Later economists confronted the identification problem — observed price-and-quantity pairs reflect both curves shifting, so isolating the demand elasticity requires something that moves supply without moving demand. Modern applied work uses natural experiments, tax changes, and instrumental variables to recover credible estimates. Elasticity figures now inform tobacco and alcohol tax policy, utility regulation, airline and hotel pricing, and antitrust analysis of whether two products belong in the same market.