Question

Which one of the following statements is true? Price elasticity of demand measures [1] changes in a product’s price. [2] sensitivity of quantity demanded to change in price. [3] percentage change in quantity demanded. [4] the relationship between price and quantity demanded.

Answer 1

Price elasticity of demand:

$e_p=\frac{dQ/Q}{dP/P}$

$Q$ is quantity of the demanded good

$P$ is price of the demanded good

Answer: [2] it measures sensitivity of quantity demanded to change in price.