Arc Elasticity

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DEFINITION of 'Arc Elasticity'

The elasticity of one variable with respect to another between two given points. It is used when there is no general function to define the relationship of the two variables. Arc elasticity is also defined as the elasticity between two points on a curve.

BREAKING DOWN 'Arc Elasticity'

Price elasticity of demand is the percentage change in quantity demanded for a unit change in price. Arc elasticity computes the percentage change between two points in relation to the average of the two prices and the average of the two quantities, rather than the change from one point to the next. This provides the average elasticity for the arc of the curve between the two points. Hence, the term "arc elasticity."

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