What does price elasticity of demand measure?

• A. How much price changes with demand
• B. How much quantity demanded changes with price
• C. How total revenue changes with price
• D. How consumer income affects demand

Answer: (B)

Price elasticity of demand measures how sensitive buyers are to price changes by looking at how much the quantity demanded changes when price changes. It’s quantified as the percentage change in quantity demanded divided by the percentage change in price. This tells you how responsive demand is: if a small price move causes a large change in quantity demanded, demand is elastic; if quantity hardly changes, demand is inelastic. Since, in everyday markets, quantity demanded usually falls when price rises, the elasticity is typically negative, though economists often report the magnitude (the absolute value) to discuss how strong the response is.

The option describing how quantity demanded changes with price directly captures this idea of responsiveness. The other statements describe different concepts: one talks about price changing due to demand, which isn’t what elasticity measures; another concerns total revenue, which depends on elasticity but is not the measurement itself; and one refers to income affecting demand, which is income elasticity of demand.