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Definition – What is midpoint elasticity (also known as arc elasticity)?
Midpoint elasticity is an alternate method of calculating elasticity.
Formula – How to calculate Arc Elasticity
Midpoint Elasticity = (Change in Quantity / Average Quantity) / (Change in Price / Average Price)
Change in Quantity = Q2 – Q1
Average Quantity = (Q1 + Q2) / 2
Change in Price = P2 – P1
Average Price = (P1 + P2) / 2
Example
Quantity at the start is 500. At the end it is 600. Price at the start is 20. At the end it is 30.
Change in Quantity = 600 – 500 = 100
Average Quantity = (500 + 600) / 2 = 1,100 / 2 = 550
Change in Price = $30 – $20 = $10
Average Price = ($20 + $30) / 2 = $50 / 2 = $25
Midpoint Elasticity = (100 / 550) / ($10 / $25) = 0.18 / 0.4 = 0.45
Therefore, midpoint elasticity is 0.45.
Sources and more resources
- Lumen Learning – Calculating Price Elasticity using the Midpoint Formula – Part of a larger course on microeconomics, this page details how to use the midpoint formula. Includes formulas and sample questions.
- Wikipedia – Arc elasticity – A quick overview of arc elasticity. Includes formulas.
- Investopedia – Arc elasticity – Explains what arc elasticity is and how to calculate it.