Economics MCQ: Understanding Price Elasticity of Demand
The question asks for the term that represents the ratio of the percentage change in the quantity demanded of a good to the percentage change in its price.
- This ratio is the definition of price elasticity of demand. It measures how sensitive the quantity demanded is to a change in the price of that good.
Formula for Price Elasticity of Demand
Mathematically, it is expressed as:
Price Elasticity of Demand ($E_d$) = $\frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}} = \frac{\% \Delta Q_d}{\% \Delta P}$
Analyzing Other Options
- Production Function: This relates inputs to outputs in production, not demand response to price.
- Price Elasticity of Supply: This measures the responsiveness of quantity supplied to price changes, not quantity demanded.
- Perfect Competition: This is a market structure, not a measure of responsiveness.
Therefore, the correct term is price elasticity of demand.
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