Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes.
There are two types of elasticity
1.Point Elasticity
2.Arc Elasticity
•Point Elasticity- Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of it.
To get point PED we need to re-write the basic formula to include an expression to represent the percentage, which is the change in a value divided by the original value, as follows:
(∆qd/qd)/(∆p/p)
There are two types of elasticity
1.Point Elasticity
2.Arc Elasticity
•Point Elasticity- Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of it.
•Arc Elasticity:Arc elasticity of demand measures elasticity between two points on a curve – using a mid-point between the two curves.
On most curves, the elasticity of a curve varies depending on where you are. Therefore elasticity needs to measure a certain sector of the curve.
Mid point Q = Q1+Q2/2
Mid point P= (P1+P2)/2
Where Q is quantity of goods
P is price of goods
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