Elasticity and Marginal Effects: Two Key Concepts

One of the critical parts of building a great model is using your understanding of the problem and context. Choosing an appropriate model type and deciding on appropriate features/variables to explore based on this information is critical.

The two key concepts of elasticity and marginal effects are fundamental to an economic understanding of model building. This is something that can be overlooked for practitioners not coming from that background. Neither concept is difficult or particularly obtuse.

This infographic came about because I had a group of talented economics students at the masters’ level who had no econometric background, by and large. In a crowded course, I don’t have much time to expand on my favourite things. This was my take on explaining the concepts quickly and simply.

Elasticity infographic

For those very new to the concept, this explanation here is simple. Alternatively, if you’re interested in non-constant marginal effects and ways they can be used, check out this discussion.

 

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