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Arc elasticity of demand (view source)
Revision as of 15:39, September 13, 2011
, 15:39, September 13, 2011Undo revision 914303 by Shjt (talk)
'''Arc elasticity of demand''' calculates the elasticity by using the average overall values for [[price]] and [[quantities]] as the respective denominator in calculating the elasticities.
There is an ambiguity in calculating the percentage change in price or quantity in calculating elasticity of demand. What should be used as the denominator in deriving the percentages? If $100 increases to $110, then the percent change could be described as $10/$100 x 100% or $10/$110 x 100%. Above we used the initial price and quantity as the denominator, but we could have used the final price and quantity as the denominator instead.
Economists resolve this by typically using the “arc elasticity” because it is a more accurate depiction of the “arc” or curve of demand.
[[Category:Economics]]