Arc method

Arc method:

Segment of a demand curve among two points is termed as an Arc.

Arc elasticity is evaluated from the formula given below:

1244_arc method1.jpg


ΔQ = modify in quantity demanded
ΔP = modify in price of the commodity
P1= unique price
P2 = fresh price
Q1 = unique quantity
Q2 = fresh quantity

1761_arc method2.jpg

Arc elasticity formula must be employed whenever the change in price is somewhat big.

2419_arc method3.jpg

Figure: Arc Elasticity

In figure above we can evaluate arc elasticity among points A and B on the demand curve; we will have to acquire the average prices of OP1 and OP2 and average of the two amounts demanded (i.e., original and new).


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