Arc Elasticity of Demand – Measures of Price elasticity of Demand

 The point method of measuring price elasticity of demand is not very realistic since demand schedules with minute changes in prices and quantities demanded are rarely available. In reality we nay come across demand schedules that have gaps in prices as well as in quantities. The most satisfactory solution is the use of the mid points between the old and the new figures in the case of both price and quantity demanded. This method of measurement is known as arc elasticity as different from point elasticity. Arc signifies a segment or portion of a curve between two points. The formula for measuring the arc elasticity is:

Ep =

; In Which

Q= Original quantity demanded

Q1= New quantity demanded

P= Original price

P1= New price

Let us take a concrete example to explain the arc method. The demand for a commodity was 2,000 units per week when the price was Rs. 5/- per unit the demand contracted to 2500 units when price was raised from Rs. 5/- to Rs. 10/- per unit.

The formula to calculate elasticity of demand by arc method is:

E =

Substituting the figures in the above equation

E =

-3/5

.6

Elasticity is – =. 6

Negative sign in elasticity coefficient represents the reciprocal relation between price and quantity.

3 thoughts on “Arc Elasticity of Demand – Measures of Price elasticity of Demand”

  1. I happen to be commenting to make you be aware of what a cool encounter my child undergone using your web site. She came to find too many issues, which include how it is like to possess a marvelous teaching nature to have most people effortlessly gain knowledge of several problematic things. You truly exceeded our own desires. Thank you for producing these effective, trustworthy, educational and unique thoughts on your topic to Sandra.

  2. I and also my pals came digesting the nice strategies from your web site then then got a horrible feeling I never thanked the web blog owner for them. The men were as a result passionate to read all of them and have now definitely been making the most of these things. We appreciate you really being very helpful and also for making a decision on this kind of brilliant issues millions of individuals are really desperate to discover. Our own sincere apologies for not expressing appreciation to earlier.

  3. I am just writing to make you understand what a fabulous discovery our daughter gained visiting your blog. She figured out some things, with the inclusion of what it’s like to possess an awesome coaching heart to let most people easily gain knowledge of selected grueling subject matter. You actually exceeded her desires. Thanks for showing the valuable, dependable, educational not to mention fun tips about that topic to Kate.

Leave a Reply

Your email address will not be published. Required fields are marked *