Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Percentage change in quantity demanded divided by percentage change in price
B
Total revenue divided by quantity demanded
C
Price divided by quantity demanded
D
Change in quantity demanded divided by change in price
Understanding the Answer
Let's break down why this is correct
Answer
The price elasticity of demand measures how much the quantity demanded of a good changes when the price changes. The formula to calculate this is the percentage change in quantity demanded divided by the percentage change in price. For example, if the price of a product goes up by 10% and the quantity demanded goes down by 20%, you would calculate the elasticity by dividing -20% by 10%, which equals -2. This means the demand is elastic, as the quantity demanded changes more than the price. Understanding this helps businesses set prices and predict how changes will affect sales.
Detailed Explanation
The correct formula shows how much the quantity people want to buy changes when the price changes. Other options are incorrect because This option mixes up total revenue with demand; This option suggests dividing price by quantity demanded, which doesn't show how demand changes.
Key Concepts
price elasticity of demand
Topic
Elasticity Formulas and Relationships
Difficulty
easy level question
Cognitive Level
understand
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