Explain measuring arc elasticity, Managerial Economics

Assignment Help:

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


Related Discussions:- Explain measuring arc elasticity

Balance of payments - reason for protection, Balance of Payments Perha...

Balance of Payments Perhaps the most immediate reason for bringing in protection is a balance of payment deficit.  If a country had a persistent deficit in its balance of paym

What wage will the firm pay, A firm faces a perfectly elastic demand for it...

A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output. The firm, Though, faces an upward-sloped labor supply curve of          E= 20w-120 W

Slope of the demand curve and price elasticity, The elasticity of a demand ...

The elasticity of a demand curve is frequently judged by its appearance: the flatter the demand curve, the greater the elasticity and vice versa. However this conclusion is mislead

Function and importance, explain the supply function and importance of supp...

explain the supply function and importance of supply analysis in brief

What kind of price discrimination, Imagine an amusement park with a sole at...

Imagine an amusement park with a sole attraction: a roller coaster. For simplicity, the cost of providing a ride is zero. There is a single consumer with demand for rides on the ro

Law of association, the benefits of exchange in the light of the law of ass...

the benefits of exchange in the light of the law of association, the introduction of money in direct exchange and way income gets distributed among market participants

Iso-quants and iso-cost curve, Explain how a product would reach equilibriu...

Explain how a product would reach equilibrium position with the help  of -iso-quants and iso-cost curve.

Disguised unemployment, Disguised unemployment Situation where some pe...

Disguised unemployment Situation where some people are employed apparently, but if they are withdrawn form this job, total production remains the same. In most developing coun

#, Illustrate the application of economic theory to some business problems

Illustrate the application of economic theory to some business problems

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd