What does the price elasticity of demand measure?

• A. The responsiveness of the quantity demanded to changes in price.
• B. The slope of the budget line.
• C. The sensitivity of the quantity demanded to changes in demand.
• D. How often the price changes.

Answer: (A)

The price elasticity of demand is about how much the quantity demanded responds when price changes. It’s defined as the percentage change in quantity demanded divided by the percentage change in price, making it a unit-free measure that can compare different goods or price ranges. If a small price increase leads to a large drop in quantity demanded, elasticity is large in absolute value (elastic). If quantity hardly changes, elasticity is small (inelastic). If the changes are proportional, elasticity is around one (unit elastic). Remember, elasticity is about percent changes and depends on the starting price and quantity, not just the slope of the demand relationship. This is why the description “the responsiveness of the quantity demanded to changes in price” best captures the concept. The other options don’t fit: the budget line’s slope is about resources, not demand responsiveness; demand isn’t defined by changes in demand itself; and how often price changes is not what elasticity measures.