
Today's Index
Yesterday's Index 208.7
Help us compile the AmosWEB Free Lunch Index. Tell us about your last lunch.
More About the Index



Should have been in Super Bowl?



PERFECT COMPETITION, PROFIT MAXIMIZATION: A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profitthe difference between total revenue and total cost. This production decision can be analyzed directly with economic profit, by identifying the greatest difference between total revenue and total cost, or by the equality between marginal revenue and marginal cost.
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, 20002016. [Accessed: February 14, 2016]. Check Out These Related Terms...       Or For A Little Background...       And For Further Study...      
Search Again?
Back to the WEB*pedia



State of the ECONOMY
ecommerce sales
2nd Quarter 2015
$87.5 billion
Up 0.9% from 2nd Quarter 2015 US Census Bureau
More Stats


General Electric is the only stock from the original 1896 Dow Jones Industrial Average remaining in the current index.


"Things turn out best for the people who make the best of the way things turn out."  Art Linkletter


IADB InterAmerican Development Bank


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

