In microeconomics, what does the price elasticity of demand measure?

• A. The responsiveness of quantity demanded to a change in price, typically measured as the percentage change in quantity demanded divided by the percentage change in price
• B. The slope of the demand curve measured as $\frac{dQ}{dP}$ at a point, without using percentage changes
• C. The responsiveness of price to a change in quantity demanded, typically measured as the percentage change in price divided by the percentage change in quantity demanded
• D. The change in total revenue resulting from a one-unit increase in price

Answer: (A)

Verified step by step guidance

1. Understand that the price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
2. Recognize that this responsiveness is typically expressed as a ratio of percentage changes, not absolute changes, to allow comparison across different goods and price levels.
3. Write the formula for price elasticity of demand as the percentage change in quantity demanded divided by the percentage change in price: \(\text{Price Elasticity of Demand} = \frac{\% \Delta Q}{\% \Delta P}\).
4. Note that this differs from the slope of the demand curve, which is \(\frac{dQ}{dP}\) and measures the rate of change in quantity with respect to price in absolute terms, not percentage terms.
5. Understand that price elasticity of demand is not about how price responds to quantity changes, nor is it directly about changes in total revenue, but specifically about the responsiveness of quantity demanded to price changes.