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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Arc elasticity of demand is still defined as the percentage change in quantity demanded divided by the percentage change in price. However, because the choice of base for calculating percentage changes has an effect on the calculation, economists have chosen to use the average quantity and the averageprice as the base for calculating the percentage changes.
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4.1. Own-Price Elasticity of Demand
e know that when price is 5, quantity demanded is 9,200, and when price is 6, quantity demanded is 8,800, but we do not know anything more about the demand function. Under these circumstances, economists use something called arc elasticity . <span>Arc elasticity of demand is still defined as the percentage change in quantity demanded divided by the percentage change in price. However, because the choice of base for calculating percentage changes has an effect on the calculation, economists have chosen to use the average quantity and the averageprice as the base for calculating the percentage changes. (Suppose, for example, that you are making a wage of €10 when your boss says, “I’ll increase your wage by 10 percent.” You are then earning €11. But later that day, if your boss then re


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