Arc method:

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

Arc elasticity is evaluated from the formula given below:

Here,

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

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

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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