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

Central bank functions-bank of central clearance, Bank of Central Clearance...

Bank of Central Clearance ,Settlement and Transfer This function was first developed by the bank of England toward the middle of the nineteenth century. In 1954, a scheme was

Government spending multiplier, Now, let's modify our model a bit. Let's ad...

Now, let's modify our model a bit. Let's add a fourth sector of spending so that Y = C + I + G + X n with X = X o and M = M = f (Y). Will this change, by itself, increase, decrea

The governed economy, THE GOVERNED ECONOMY The governed economy contai...

THE GOVERNED ECONOMY The governed economy contains central authorities often simply called "the government" - who levy taxes on firms and households and which engages in numer

"Principal Agent Problem", For this assignment, write at least two pages do...

For this assignment, write at least two pages double spaced about how the principal agent problem applies to: 1. CEO''s, and their relationship with the firm, it''s employees, and

Price wars, on the application of any of the concepts learnt in Managerial ...

on the application of any of the concepts learnt in Managerial Economics. You may try to use these concepts to everyday problems in life or in any of the current debates on in the

Theory of consumer behaviour, Theory of Consumer Behaviour Through the...

Theory of Consumer Behaviour Through the study of theory of consumer behaviour we can be able to explain why consumers buy more at a lower price than at a higher price or put

Individual firm and market supply curves, Individual firm and market supply...

Individual firm and market supply curves The quantities and prices in the supply schedule can be plotted on a graph. Such a graph is called the firm supply curve. A fir

Game theory, game theory matrix dominant strategy

game theory matrix dominant strategy

Concepts of elasticities in making decisions, Question 1: "Anyone who i...

Question 1: "Anyone who is willing to learn the language of economics and take the time to practice making decisions can learn to be an effective manager." Explain how. Qu

Explain the shut down point, Q. Explain the Shut down point? ShutdownP...

Q. Explain the Shut down point? ShutdownPoint: With MR = MC, firm attains equilibrium at point E where it produces OM amount of the output. To produce this output, firm incur

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