In microeconomics, what does elasticity measure?

• A. The total amount of a good consumers are willing to buy at every possible price, holding income constant.
• B. The responsiveness of one variable (such as quantity demanded) to a change in another variable (such as price), typically measured in percentage terms.
• C. The extent to which a market price deviates from marginal revenue in equilibrium.
• D. The difference between marginal cost and average total cost at a given output level.

Answer: (B)

Verified step by step guidance

1. Understand that elasticity in microeconomics measures how one variable responds to changes in another variable, often focusing on quantity demanded and price.
2. Recognize that elasticity is typically expressed as a percentage change, which allows comparison of responsiveness regardless of the units involved.
3. Recall the general formula for elasticity: \(\text{Elasticity} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\) when dealing with price elasticity of demand.
4. Note that elasticity helps us understand the sensitivity of consumers or producers to changes in economic variables, which is crucial for decision-making and policy analysis.
5. Distinguish elasticity from other concepts such as total quantity demanded, deviations between price and marginal revenue, or cost differences, as elasticity specifically focuses on responsiveness rather than absolute levels or differences.