Which term describes the measure of how responsive demand is to changes in price?

Which term describes the measure of how responsive demand is to changes in price?

• A. Opportunity cost
• B. Federalism
• C. Price elasticity
• D. Rule of law

Answer: (C)

Price elasticity of demand measures how responsive buyers are to price changes. It looks at how much the quantity demanded changes in response to a given change in price. When demand is elastic, a small price change leads to a large change in the quantity purchased, so consumers are very sensitive to price. When demand is inelastic, price changes have only a limited effect on the quantity demanded, meaning buyers are less sensitive. The elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price, making it a unitless measure. For example, if the price rises by 10% and the quantity demanded falls by 20%, the elasticity is -2, indicating a highly elastic response. This concept helps explain how price moves can affect total revenue: with elastic demand, higher prices can reduce revenue, while with inelastic demand, higher prices can increase revenue. Other terms describe different ideas—opportunity cost relates to what you give up, federalism to the division of governmental powers, and the rule of law to the principle that laws govern a society—so they don’t describe how demand responds to price.

Price elasticity of demand measures how responsive buyers are to price changes. It looks at how much the quantity demanded changes in response to a given change in price. When demand is elastic, a small price change leads to a large change in the quantity purchased, so consumers are very sensitive to price. When demand is inelastic, price changes have only a limited effect on the quantity demanded, meaning buyers are less sensitive. The elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price, making it a unitless measure. For example, if the price rises by 10% and the quantity demanded falls by 20%, the elasticity is -2, indicating a highly elastic response. This concept helps explain how price moves can affect total revenue: with elastic demand, higher prices can reduce revenue, while with inelastic demand, higher prices can increase revenue. Other terms describe different ideas—opportunity cost relates to what you give up, federalism to the division of governmental powers, and the rule of law to the principle that laws govern a society—so they don’t describe how demand responds to price.