Question

Which of the following best defines price elasticity?

1) The measure of the responsiveness of the quantity demanded or supplied of a good to a change in its price
2) The measure of the responsiveness of the quantity demanded or supplied of a good to a change in income
3) The measure of the responsiveness of the quantity demanded or supplied of a good to a change in the price of a related good
4) The measure of the responsiveness of the quantity demanded or supplied of a good to a change in the price of a substitute good

Answer 1

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price.

Step-by-step explanation:

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. We compute it as the percentage change in quantity demanded (or supplied) divided by the percentage change in price. We can describe elasticity as elastic (or very responsive), unit elastic, or inelastic (not very responsive). Elastic demand or supply curves indicate that quantity demanded or supplied respond to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. A unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied.