# elasticity of substitution

## Definition

The elasticity of the ratio of two inputs to a production (or utility) function with respect to the ratio of their marginal products (or utilities). With competitive demands, this is also the elasticity with respect to their price ratio. For example, with factors L,K and factor prices w,r, the elasticity of substitution of a production function F(K,L) is s = (wL/rK)d(K/L)/d(w/r).