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

Cost parameter, A toy manufacturer makes output according to the production...

A toy manufacturer makes output according to the production function: where n is the number of workers employed by the firm, O is a technological parameter and g the worker

Monopolistic versus perfect competition, firms both in monopolistic and per...

firms both in monopolistic and perfect competition tend to make normal profits but why do they criticize only monopolistic competition

Fixed costs - short run cost function, Fixed costs are those that are indep...

Fixed costs are those that are independent of output. They should be paid even if firm produces no output. They wouldn't change even if output changes. They remain fixed whether ou

Can you explain about demand forecasting, Q. Can you explain about Demand F...

Q. Can you explain about Demand Forecasting? Demand forecasting involves forecasting and estimating the quantity of a service or product that consumers will buy in future. It a

Transfer payments, Transfer Payments Are any payments made to househol...

Transfer Payments Are any payments made to households by the government that are not made in return for the services of factors of production i.e. there is no Quid pro Quo.  S

Product of marginal revenue, Q. Product of marginal revenue? MRPL is th...

Q. Product of marginal revenue? MRPL is the product of marginal revenue and marginal product of labour or MRPL = MR x MPL. • Derivation: MR = ?TR/?Q MPL = ?Q/?L

Example on changes in fixed costs and profit maximisation, Q. Example on Ch...

Q. Example on Changes in fixed costs and profit maximisation? What if arena owner in the illustration above triples the fee for the subsequent concert but all other factors are

Environmental degradation, Comment on the consequences of environmental deg...

Comment on the consequences of environmental degradation on the economy of a community.

The acceleration principle, THE ACCELERATION PRINCIPLE Suppose that th...

THE ACCELERATION PRINCIPLE Suppose that there is a given ratio between the level of output Y t at any time t , and the capital stock required to produce it K t and that

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