Question

Explain the method of measuring point elasticity and arc elasticity

Answer 1

When calculating elasticity of demand there are two possible ways.

Point elasticity of demand takes the elasticity of demand at a particular point on a curve (or between two points)

Arc elasticity measures elasticity at the midpoint between the two selected points:

Formula for point elasticity of demand is:

PED =

% Δ Q / Q
————-
% Δ P / P

To get more precision, you can use calculus and measure an infinitesimal change in Q and Price  ( where ð = very small change) This is the slope of the demand curve at that particular point in time.



 

 

Arc Elasticity

Arc elasticity measures the mid point between the two selected points:



 

 

 

Example of Difference between Point and Arc Elasticity A to B



Point elasticity A to B

Quantity increase from 200 to 300 = 100/200 = 50%

Price falls from 4 to 3 = 1/4 = -25%

Therefore PED = 50/ -25 =  – 2.0

Mid Point (Arc) Elasticity A to B

Mid point of Q = (200+300) / 2 = 250

Mid Point of P = (3+4) / 2 = 3.5

Q % = (100/250) = 40%

P % = 1/3.5 = 28.57

PED = 40/-28.57 = – 1.4

(or ( 3.5/250)  * 100/1 = – 1.4)