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

Impact of inflation, THE IMPACT OF INFLATION Inflation has different e...

THE IMPACT OF INFLATION Inflation has different effects on different economic activities on both micro and macro levels.  Some of these problems are considered below: i.

Advantages of perfect market, Advantages of Perfect Market It achi...

Advantages of Perfect Market It achieves, subject to certain conditions, an allocation of resources which is: socially optimal" or "economically efficient" or "pareto effi

Loss at the point of equilibrium, Q. Loss at the point of equilibrium? ...

Q. Loss at the point of equilibrium? Losses: At the point of equilibrium i.e. E where MR = MC, firm produces OM amount of the output. To produce this output, firm incurs an a

Actual income and full employment income, Actual income and Full employment...

Actual income and Full employment income Full employment income (Also called Potential National) is the national income that could be produced when the country's factors of pr

Supply-side policies for unemployment, Supply-side policies Supply-sid...

Supply-side policies Supply-side policies are intended to increase the economy's potential rate of output  by increasing the supply of factor inputs, such as labour inputs and

Original model again, Thinking about modifications in the model again: Go b...

Thinking about modifications in the model again: Go back to the original model again, but add a marginal propensity to invest, this is, suppose  that I = f ( i and Y). The MPI is d

Identity economics, McDonalds has been operating in many Asian countries su...

McDonalds has been operating in many Asian countries such as China, Singapore and Japan. However, McDonalds has yet to open its ?rst restaurant in Vietnam, a country with over 80 m

Kristy, Rail Tours sells packaged tours on rail lines, including gourmet me...

Rail Tours sells packaged tours on rail lines, including gourmet meals and a reserved bed. The most popular tours are in the autumn when colors are at their peak. The overnight pac

Show the williamson''s approach for team production, For Oliver E. Williams...

For Oliver E. Williamson, existence of firms derives from 'asset specificity' in production, where assets are specific to each other such that their value is much less in a second-

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