# arc elasticity

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## Arc Elasticity

A variable's elasticity (or relative stability of a variable with respect to another variable's change) when the two variables are between two given points. One calculates the arc elasticity by dividing the percentage change of one variable by the percentage change of the other. This is used to find a more accurate measure of the price elasticity of demand.

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## arc elasticity

a rough measure of the responsiveness of DEMAND or SUPPLY to changes in PRICE, INCOME, etc. In the case of PRICE ELASTICITY OF DEMAND, it is the ratio of the percentage change in quantity demanded (Q) to the percentage change in price (P) over a price range such as P_{0}to P1 in Fig. 8. Arc elasticity of demand is expressed notationally as:

where P_{0} = original price, Q_{0} = original quantity, P1 = new price, Q1 = new quantity. Because arc elasticity measures the elasticity of demand (*e*) over a price range or arc of the demand curve, it is only an approximation of demand elasticity at a particular price (POINT ELASTICITY). However, the arc elasticity formula gives a reasonable degree of accuracy in approximating point elasticity when price and/or quantity changes are small. See also ELASTICITY OF DEMAND.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005