Multiple Choice
When calculating percentage change using the midpoint (arc elasticity) method, is the percent increase from 50 to 70 equal to the percent decrease from 70 to 50? Which statement is correct?
4. Elasticity
Percentage Change and Price Elasticity of Demand
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The price elasticity of demand measures:
A
the total revenue earned by producers at different prices
B
the change in consumer income resulting from a price change
C
the responsiveness of quantity demanded to changes in price
D
the relationship between price and supply
Verified step by step guidance1
Understand that the price elasticity of demand is a concept that measures how much the quantity demanded of a good responds to a change in its price.
Recall the formula for price elasticity of demand, which is given by:
\[\text{Price Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\]
Interpret the formula: a higher absolute value of elasticity means quantity demanded is more responsive to price changes, while a lower value means it is less responsive.
Recognize that this concept does not measure total revenue, consumer income changes, or supply relationships directly, but specifically the responsiveness of quantity demanded to price changes.
Conclude that the correct understanding of price elasticity of demand is that it measures the responsiveness of quantity demanded to changes in price.
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