Question
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
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
Ask by Cruz Bowers. in the United States
Jan 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Price elasticity of demand measures how consumers change their purchases of a good in response to a change in its price.
Solution
The correct answer is:
d. how consumers change their purchases of a good in response to a change in its price.
Explanation:
Price elasticity of demand specifically measures the responsiveness of the quantity demanded of a good to a change in its price. It quantifies how much the quantity demanded will increase or decrease when the price of the good changes.
- Option a refers to income elasticity of demand, which measures how demand changes in response to changes in consumer income.
- Option b relates to cross-price elasticity of demand, which measures how the quantity demanded of one good changes in response to a change in the price of a substitute or complementary good.
- Option c does not accurately describe price elasticity of demand; it refers more to the concept of supply and demand equilibrium.
Thus, option d is the most accurate definition of price elasticity of demand.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Beyond the Answer
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!
