
MARKET EFFICIENCY: The notion that a competitive market automatically achieves an efficient allocation of resources by equating demand price with supply price and quantity demanded with quantity supplied. Market efficiency relies on the selfcorrection process that eliminates shortages or surpluses. It also presumes that the market is competitive and is not subject to assorted market failures.
Visit the GLOSS*arama




ARC ELASTICITY: The average elasticity for discrete changes in two variables. The distinguishing characteristic of arc elasticity is that percentage changes are calculated based on the average of initial and ending values of each variable, rather than initial values. Arc elasticity is generally calculated using the midpoint elasticity formula. The contrast to arc elasticity is point elasticity. For infinitesimally small changes in two variables, arc elasticity is the same as point elasticity. Arc elasticity is best considered the average elasticity over a range of values for a relation. Like any average, some values within the range are likely to be greater and some less. However, it provides a quick approximation of elasticity when more precise and sophisticated calculation techniques are not possible.Working Through an ExampleA Standard Demand Curve 

 The demand curve displayed to the right can be used to illustrate the measurement of arc elasticity using the midpoint elasticity formula. If the price declines from $12 to $8, the quantity demanded increases from 4 to 6, from point X to point Z. Using this midpoint formula (with price designated as P and quantity designated as Q) average price elasticity of demand is:midpoint elasticity  =  (Q[Z]  Q[X]) (Q[Z] + Q[X])/2  ÷  (P[Z]  P[X]) (P[Z] + P[X])/2 
midpoint elasticity  =  (6  4) (6 + 4)/2  ÷  (8  12) (8 + 12)/2  =  (2) (5)  ÷  (4) (10) 
midpoint elasticity  =  0.4  ÷  0.4  =  1.0 
Ignoring the minus sign, the price elasticity of demand over this segment of the demand curve from X to Z is 1.0.An Average ValueThis value of 1.0 is actually an average for the entire range between points X and Z. Precise estimates of point elasticity shows that the elasticity is 0.67 at point X and 1.5 at point Z. Moreover, the elasticity is different at each point on a straight line demand curve such as this one. The only point in which the elasticity is exactly equal to 1.0 is at point Y, the midpoint between X and Z.This last observation is worth emphasizing. The midpoint elasticity formula effectively estimates the point elasticity at the very midpoint of the overall segment. This means that the elasticity of any point on a demand curve (point elasticity) can be obtained by calculating the arc elasticity with the midpoint elasticity formula such that the desired point is dead center in the middle, the midpoint of the arc.
Recommended Citation:ARC ELASTICITY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 20002019. [Accessed: September 20, 2019]. Check Out These Related Terms...       Or For A Little Background...       And For Further Study...      
Search Again?
Back to the WEB*pedia



BROWN PRAGMATOX [What's This?]
Today, you are likely to spend a great deal of time flipping through the yellow pages wanting to buy either a wall poster commemorating the first day of spring or a lazy Susan for you dining room table. Be on the lookout for rusty deck screws. Your Complete Scope
This isn't me! What am I?


John Maynard Keynes was born the same year Karl Marx died.


"No amount of business school training or work experience can teach what is ultimately a matter of personal character. "  Truett Cathy, ChickfilA Inc. founder


GSP Gross State Product, Generalized System of Preferences


Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.
User Feedback

