The responsiveness of demand to a change in price

The responsiveness of demand to a change in price

• A. Price elasticity of demand
• B. Total revenue
• C. Consumer durables
• D. Discretionary expenditure

Answer: (A)

The main concept is price elasticity of demand, which measures how much the quantity demanded changes in response to a price change. It is calculated as the percentage change in quantity demanded divided by the percentage change in price, with the usual negative sign because price and quantity move in opposite directions (often we look at the absolute value to judge how responsive buyers are). This helps explain how risky or rewarding a pricing move might be: if demand is elastic, a price drop can boost total sales enough to increase revenue; if demand is inelastic, price increases can raise revenue because the drop in quantity is small. The other options don’t describe how strongly buyers respond to price changes: total revenue is the money earned from sales, and consumer durables and discretionary expenditure are types of goods or spending categories, not measures of responsiveness to price.

The main concept is price elasticity of demand, which measures how much the quantity demanded changes in response to a price change. It is calculated as the percentage change in quantity demanded divided by the percentage change in price, with the usual negative sign because price and quantity move in opposite directions (often we look at the absolute value to judge how responsive buyers are). This helps explain how risky or rewarding a pricing move might be: if demand is elastic, a price drop can boost total sales enough to increase revenue; if demand is inelastic, price increases can raise revenue because the drop in quantity is small. The other options don’t describe how strongly buyers respond to price changes: total revenue is the money earned from sales, and consumer durables and discretionary expenditure are types of goods or spending categories, not measures of responsiveness to price.