Explain measuring arc elasticity, Managerial Economics

The concept of point elasticity is applicable where change in price and the resulting change in quantity are infinite or small. Though, where change in price and consequent hunger in demand is substantial, concept of arc elasticity is the pertinent concept. Arc elasticity is a measure of the average of responsiveness of quantity demanded to a considerable change in the price. Or we can say, the measure of price elasticity of demand between two finite points on a demand curve is called arc activity. For instance, the measure of elasticity between points J and K (Fig. below) is: the measure of arc elasticity. Movement from point J to K along the demand curve D) demonstrates a fall in price from 25$  to 10$ so that AP = 25 - 10 = 15. Consequent increase in demand, AQ = 30 - 50 = - 20. The arc elasticity between point J and K and (moving from J to K) can be attained by substituting these values in the elasticity formula.

EP = (-δQ/δP). (P/Q)    = (-20/15)(25/30) = 1.11

Which means that a one percent decrease in price of commodity X results in a 1.11 percent increase in demand for it.

1523_Explain MEASURING ARC ELASTICITY.png

Figure: Measuring Arc Elasticity

Posted Date: 8/10/2013 1:31:09 AM | Location : United States







Related Discussions:- Explain measuring arc elasticity, Assignment Help, Ask Question on Explain measuring arc elasticity, Get Answer, Expert's Help, Explain measuring arc elasticity Discussions

Write discussion on Explain measuring arc elasticity
Your posts are moderated
Related Questions
Q. Development of Skilled Labour - External Economies? As the industry grows training facilities for labour will increase. This helps development of skilled labour that would i

effects and implication of taxation in relation to managerial economics

Question 1: 1 Explain the importance of barriers to entry in the control of Monopoly rents. 2 Discuss the extent to which competition leads to market promotion? Questi

Q. Causes for diseconomies of scale? The most significant cause for diseconomies of scale is the diminishing returns to management. As the output grows beyond certain level the

Prediction markets:   These are speculative markets fashioned with the intention of making predictions. Assets which are produced possess an ultimate cash worth bound to a specific

Another vital relationship that is often referred to in economic analysis is the relationship between consumption expenditure andprice elasticity. From the law of demand, we know t


PUBLIC SECTOR BORROWING REQUIREMENT (PSBR) Public Sector Borrowing Requirement (PSBR) is the amount which the government needs to borrow in any one year to finance an excess e

Firm and industry supply schedules The plan or table of possible quantities that will be offered for sale at different prices by individual firms for a commodity is called su

Two firms are engaged in Bertrand competition. Both firms have a stable marginal cost of €7. Presently, every firm is allocated half the market. There are 10,000 people in the popu