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The y arc elasticity of x is defined as: , = % % where the percentage change in going from point 1 to point 2 is usually calculated relative to the midpoint: % = (+) /; % = (+) /. The use of the midpoint arc elasticity formula (with the midpoint used for the base of the change, rather than the initial point (x 1, y 1) which is used in almost all other contexts for calculating percentages) was ...
Loosely speaking, this gives an "average" elasticity for the section of the actual demand curve—i.e., the arc of the curve—between the two points. As a result, this measure is known as the arc elasticity, in this case with respect to the price of the good. The arc elasticity is defined mathematically as: [16] [17] [18]
The elasticity at a point is the limit of the arc elasticity between two points as the separation between those two points approaches zero. The concept of elasticity is widely used in economics and metabolic control analysis (MCA); see elasticity (economics) and elasticity coefficient respectively for details.
A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in quantity demanded. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
As a common elasticity, it follows a similar formula to price elasticity of demand. Thus, to calculate it the percentage change in the quantity of the first good is divided by the percentage change in price in the second good. [17] The related goods that may be used to determine sensitivity can be complements or substitutes. [11]
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Cross elasticity of demand of product B with respect to product A (η BA): = / / = > implies two goods are substitutes.Consumers purchase more B when the price of A increases. Example: the cross elasticity of demand of butter with respect to margarine is 0.81, so 1% increase in the price of margarine will increase the demand for butter by 0.81