Arcelasticity

Arcelasticity is a term used in economics to describe a specific method of calculating the elasticity of a curve between two points. Unlike point elasticity, which measures elasticity at a single infinitesimally small point, arc elasticity calculates elasticity over a finite segment of a curve. This is particularly useful when dealing with significant changes in price or quantity, where the elasticity may vary considerably along the curve.

The calculation involves using the average of the initial and final prices and quantities as the base for the elasticity formula. The formula for arc elasticity of demand is typically expressed as:

[(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]

where Q1 and P1 are the initial quantity and price, and Q2 and P2 are the final quantity and price. This approach provides a single elasticity value that represents the average elasticity over the entire arc, offering a more stable and informative measure than point elasticity when large price or quantity changes are involved. The concept is applicable to various elasticities, including price elasticity of demand, price elasticity of supply, and income elasticity.