Explain the Arc Method of Measurement of Elasticity

Question

Explain the Arc Method of Measurement of Elasticity.

Answer 1

Arc Method: the Geometric or point method is applicable only while there are minute (very small) variation in price and demand. But, Arc elasticity measures elasticity among two points. This is a measure of the average elasticity in words of Watson that Arc elasticity is the elasticity upon the mid-point of demand curve arc. Formulate measure elasticity is as illustrates below:

ED = ?Q/ ?P × (P1+P2)/ (Q1+Q2) or 

(Change in D/ Average D) x (Average P/Change in P).

Here, ?Q= change in quantity

Q1= original quantity

P1 = original price

Q2= new quantity

P2 = New price and

?P= change in price.