The equation for price elasticity of demand is the percentage change in quantity demanded divided by percentage change in ______.

• A. Income
• B. Total cost
• C. Price
• D. Supply

Answer: (C)

Price elasticity of demand measures how responsive quantity demanded is to changes in price. The formula uses the percentage change in quantity demanded divided by the percentage change in price, so the denominator is price. This shows how big a hit in quantity results from a given price move. For example, if price changes by 20% and quantity demanded changes by 40%, elasticity is -2, indicating a highly responsive demand (the negative sign reflects the inverse relationship). Note that we often focus on the magnitude, using the absolute value, since price and quantity move in opposite directions.

The other options don’t fit this concept: income affects income elasticity of demand, total cost isn’t part of the elasticity formula, and elasticity of supply uses the change in quantity supplied rather than quantity demanded.