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Arc Elasticity is a measure of how demand or supply responds to price changes over a specified interval. It's used in managerial economics to inform pricing strategies, demand forecasting, and market analysis. Unlike Point Elasticity, which looks at infinitesimal price changes, Arc Elasticity provides an average elasticity value across a price range, aiding in strategic business decisions.
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Arc Elasticity measures the responsiveness of demand or supply to price changes over a range, while Point Elasticity evaluates responsiveness at a specific point on the demand or supply curve
Midpoint Formula
The Arc Elasticity formula, also known as the midpoint formula, calculates elasticity based on the average of initial and final values
Arc Elasticity is a useful tool for analyzing pricing strategies, forecasting demand, and understanding competitive markets in managerial economics
Arc Elasticity provides an average measure of elasticity and does not give specific values at any given point within the range of prices
Arc Elasticity assumes a linear relationship between price and quantity demanded or supplied, which may not hold true in certain situations
Point Elasticity may be more suitable for analyzing minor price changes, while Arc Elasticity is better for significant price variations