The responsiveness of demand to a change in price

• A. Price elastic demand
• B. Discretionary expenditure
• C. Price elasticity of demand
• D. Income elasticity of demand

Answer: (C)

The main idea is how much quantity demanded responds when price changes. The best term for this is price elasticity of demand, which is calculated as the percentage change in quantity demanded divided by the percentage change in price. It shows how sensitive consumers are to price movements. If the elasticity is greater than 1 in absolute value, demand is price elastic; if it’s less than 1, demand is price inelastic; if it’s exactly 1, demand is unit elastic. The other options describe either a type of demand (a situation where demand responds strongly to price changes) or measure responsiveness to income, or refer to a spending category, rather than the price-driven responsiveness itself.