The ratio of the change in price to its effect on the quantity demanded is known as

• A. Income elasticity of demand
• B. Price elasticity of demand
• C. Cross-price elasticity
• D. Demand elasticity coefficient

Answer: (B)

Elasticity of demand measures how much quantity demanded responds when a price changes. The specific measure that captures the effect of price on the quantity demanded is price elasticity of demand. It is defined as the percentage change in quantity demanded divided by the percentage change in price, showing how sensitive consumers are to price movements. This concept is central for understanding how price adjustments affect sales and revenue, as higher elasticity means demand reacts more strongly to price changes, while lower elasticity means demand is more price-inelastic.

Income elasticity of demand relates quantity changes to income changes, not price; cross-price elasticity looks at how the price of one good affects the demand for another, and the term demand elasticity coefficient isn’t a standard, precise label for this relationship.