Price elasticity of demand measures:
a. how consumers change their purchases of a good in response to a change in income.
b. how consumers change their purchases of a good in response to a change in the price of a substitute good.
c. the change in price brought about by a change in consumer demand.
d. how consumers change their purchases of a good in response to a change in its price.
a

Price elasticity of demand is all about the relationship between price changes and consumer behavior. Essentially, it tells us how sensitive consumers are to price fluctuations—if prices go up or down, will they buy more or less? For example, luxury items often have a higher elasticity; if prices rise, people might cut back, while necessities tend to be less elastic since we need them regardless of price.

In the real world, businesses use price elasticity to make pricing decisions and inventory management. For instance, a company might lower prices on products with high elasticity to boost sales or maintain inventory levels, while keeping prices stable on inelastic goods to maximize profit. Understanding whether a product is elastic or inelastic helps businesses strategize effectively!