Segment of a demand curve among two points is termed as an Arc.
Arc elasticity is evaluated from the formula given below:
ΔQ = modify in quantity demandedΔP = modify in price of the commodityP1= unique priceP2 = fresh priceQ1 = unique quantityQ2 = 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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