(i) Geometric Method : Geometric method measures elasticity of demand at different points on the demand curve. It is also known as ‘Point Method’ of measuring elasticity of demand.
The figure shows that MN is a straight line demand curve. A specific point on the demand curve is ‘P’. This point divides the demand curve into two parts, viz. lower part PN and upper part PM. Elasticity of demand at point P is the ratio between lower segment and upper segment.
(ii) Arc Elasticity of Demand : When price-elasticity of demand is measured between any two finite points on a demand curve, it is called Arc Elasticity.
The elasticity co-efficient between any two finite points on a demand curve, i.e. arc elasticity, can be measured by using the formula. For example, the measure of elasticity between points J and K on the demand curve PM in the given figure is the measure of arc elasticity. The movement from point J to K on the straight line demand curve PM shows a fall in price of commodity X from Rs. 25 to if Rs. 15 and the consequent increase in demand from 30 units to 50 units. Here, ∆P = 25 – 15 = 10 and ∆Q = 50 – 30 = 20. The arc elasticity between points J and K (moving from J to K ) can be calculated as given below:
Explanation : Elasticity coefficient is interpreted as percentage change in demand due to one per cent change in price. For example, in equation. (1), elasticity coefficient is 1.66. The elasticity coefficient will be interpreted as : 1 per cent decrease in price of commodity X results in a 1.66 per cent increase in demand for it
