What does the price elasticity of demand measure?
Part 2
A.
The amount that the demand curve shifts when there is a change in the price of the good.
B.
The change in quantity demanded when there is a 1% change in income.
C.
How long it takes consumers to react when there is a change in the price of a good.
D.
The responsiveness of quantity demanded to a change in the price of a good.
D. The responsiveness of quantity demanded to a change in the price of a good.
The correct answer is D. The price elasticity of demand measures the responsiveness or sensitivity of quantity demanded to a change in the price of a good. It shows how much the quantity demanded changes in response to a change in the price of the good.
To calculate the price elasticity of demand, you can use the following formula:
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
To find the % change in quantity demanded, you subtract the initial quantity demanded from the final quantity demanded, divide it by the initial quantity demanded, and multiply by 100.
Similarly, to find the % change in price, you subtract the initial price from the final price, divide it by the initial price, and multiply by 100.
By dividing the % change in quantity demanded by the % change in price, you can determine the price elasticity of demand.
If the result is greater than 1, it suggests that the demand is elastic, meaning that a small change in price leads to a relatively larger change in quantity demanded. If the result is less than 1, it indicates that the demand is inelastic, meaning that a change in price has a smaller impact on the quantity demanded. And if the result is equal to 1, it implies that the demand is unitary elastic, meaning that the percentage change in quantity demanded is equal to the percentage change in price.