Arc Elasticity of Demand

Arc Elasticity of Demand

 Definition of Law of Demand:

 " Demand is the relationship between price of a good and its demand. The law explains that when the price of a good increases, the quantity of its demand will decrease and on the other hand if price decreases, its quantity demanded will increase with no change in other goods"

Elasticity of Demand:

1.     " Demand is the relationship between price of a good and its demand. When there are two points at which, asked to measure the elasticity of demand, is referred to point elasticity of demand".
2.    "Elasticity measured between two specific points at the arc, is known as price elasticity of demand"

Arc Elasticity of Demand:

Arc elasticity method to measure the elasticity of demand is the method that helps us to measure the elasticity of demand between two points at the curve. The distance between these two points may be of different value (near or far).

When the price of a good changes, the demand for that good will also change. If the change in demand due to change in price, is greater one, the elasticity will be more than unit. If the change in demand due to change in price, is less one, the elasticity will be less than unit. But if these two charges are equal to each other, the elasticity will be equal to unit.

Explanation:

Look at the table, graph and the calculation. We see that the price decreases from Rs.100 to Rs.90 and the demand for the good increases to 120 units from 80 units. The change in price (100-90 = 10) and change in demand (80- 120 = - 40) displays that the change in demand is greater than the change in price indicating that elasticity of demand is greater than unit here that is Ed > 1.

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