Page 124 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-6: Theory of Demand and Elasticity of Demand

Price elasticity is determined on different points of simple curve by Fig. 6.19. Notes

Fig. 6.19

Y
M

P
Price (`) P ∆P B A C

1
∆Q
N
O X
Q Q
1
Quantity

(i) Point P is located in the middle of demand curve MN so PN (lower segment) and PM (upper segment)
will be equal. Therefore,
PN
E = ____ = 1 (Unity) means elasticity of demand on point P will be unity.
d PM

4. Arc Elasticity Method

Arc Elasticity Price is a measurement of the average responsiveness of change, which shows the
portion between two points on the demand curve. An arc is the portion between two points on the
demand curve. In fig. 6.20, the portion between A and C points is an arc on demand curve DD. The
elasticity which is to be found by using midpoint or average price and quantity, it is called as Arc
Price Elasticity.

Fig. 6.20

Y
D Arc Elasticity

Price (`) P A ARC

P
1 C D

O X
Q Q 1
Quantity

Arc elasticity is the elasticity at the midpoint of an arc of a demand curve.
—Wastson.
Arc eleasticity is a measure of the average elasticity between two points on the demand.
—Ferguson.

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