Question

Discuss the difference between
- price elasticity of demand
- arc price elasticity of demand
-point price elasticity of demand

Answer 1

Price elasticity of demand is a measure that gives the percentage change in quantity demanded in response to a one percent change in price. Its formula is:

$e(p)=(\Delta Q/Q)/(\Delta P/P)$

Arc elasticity is a concept based on finite changes in quantity demanded and price between two points on the demand curve. It can be found with the formula:

$Ed=((P1+P2)/(Qd1+Qd2))*(\Delta Qd/\Delta P)$

Point elasticity is a concept based on infinitesimal changes in quantity demanded and price from the point on the demand curve. Point elasticity can be calculated by the formula:

$Ed=(dQd/dP)*(P/Qd)$