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Arc elasticity is a concept used in microeconomic theory and in financial economics It is a measure of how sensitive the quantity demanded for a good or service is to a change in the price of the good or service The arc elasticity is used to compare the effects of a price change on the demand of two different goods or services.
Arc elasticity is the elasticity measure between two points on a demand curve. It is the percentage change in quantity demanded divided by the percentage change in price. Arc elasticity is a measure of the responsiveness of demand to any change in price. It is calculated by taking the ratio of the percentage change in quantity demanded to the percentage change in price.
One of the best examples of arc elasticity is in the price elasticity of demand for gasoline. When the price of gasoline rises, people tend to drive less, leading to a decrease in the amount demanded for gasoline. This decreases the overall demand for gasoline, which decreases the elasticity of demand for gasoline.
A second example of arc elasticity is in the demand for housing. When house prices rise, people tend to be less willing to purchase a house, thus leading to a decrease in demand for housing. This, again, decreases the elasticity of demand for housing.
A third example of arc elasticity is in the demand for food. When food prices rise, people tend to consume less of it, leading to a decrease in the amount demanded for food. This decreases the elasticity of demand for food.
A fourth example of Arc elasticity is in the demand for luxury goods. When luxury goods become more expensive, people tend to buy less of them, leading to a decrease in demand for luxury goods. This decrease in demand also decreases the elasticity of demand for luxury goods.
Finally, a fifth example of Arc elasticity is in the demand for foreign goods. When foreign goods become more expensive, people tend to purchase less of them, leading to a decrease in demand for foreign goods. This also decreases the elasticity of demand for foreign goods.
To sum up, arc elasticity is a measure of how responsive the demand for a good or service is to a change in its price. It is calculated by taking the ratio of the percentage change in quantity demanded to the percentage change in price. This concept is useful in many areas of economics, particularly in microeconomics and financial economics. Examples of arc elasticity can be seen in the demand for gasoline, housing, food, luxury goods, and foreign goods.