Arc Elasticity of Demand  

Definition: Arc elasticity of demand measures elasticity between two points on a curve.

On most curves the elasticity of a curve varies depending upon where you are. Therefore elasticity needs to measure a certain sector of the curve.

Calculating Arc Elasticity of Demand

To calculate arc elasticity of demand we take the midpoint in between

Example of Arc Elasticity of Demand:

  • Price increases from 10p to 12p.
  • Quantity falls from 40 to 20.
  • Arc elasticity of demand assumes that we should calculate using the midpoint between 40 and 20 which equals 30

The % change in quantity is 20/ 30 = – 0.667

The % change in price is 2p / 11 = 0.18

Therefore PED = -0.667 / 0.18 = -3.7

Formula for Average of ‘midpoint’ elasticity of demand

(change in Q / average Q )
—————————

(change in P / average P)

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