Question : The price elasticity of demand is calculated as the percentage change in:
Option 1: Price divided by the percentage change in quantity demanded
Option 2: Quantity demanded divided by the percentage change in price
Option 3: Quantity demanded divided by the percentage change in income
Option 4: Price divided by the percentage change in income
Correct Answer: Quantity demanded divided by the percentage change in price
Solution : The correct answer is (b) Quantity demanded divided by the percentage change in price
The price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price. This formula allows us to determine how sensitive the quantity demanded is to changes in price. If the resulting value is greater than 1, the demand is considered elastic, indicating that quantity demanded is responsive to price changes. If the value is less than 1, the demand is considered inelastic, meaning that quantity demanded is not very responsive to price changes.
