A Note on Allen’s Arc Elasticity with Arithmetic, Geometric and Harmonic Means
Discussion and debate on the application of Allen’s arc elasticity has continued into the 21st century. This note demonstrates three points. First, perceived differences between Allen’s geometric mean elasticity and a constant demand elasticity based on an assumed isoelastic demand curve are negligible for small changes in price and quantity, which comprise the vast majority of such changes. Second, in some cases of rapid security or commodity price movements, the harmonic mean may provide the most accurate elasticity estimates across measures of central tendency. Third, because the arithmetic and harmonic means serve as bounds for the geometric mean, an elasticity based on the geometric mean may be considered a prudent choice among these three on this basis alone. Copyright International Atlantic Economic Society 2012
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Volume (Year): 40 (2012)
Issue (Month): 2 (June)
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