Final answer:
The price elasticity of demand measures the responsiveness of quantity demanded to price changes and is affected by the time horizon, with elasticity generally being higher in the long term, allowing for changes in consumer behavior.
Step-by-step explanation:
The price elasticity of demand is a concept in economics that describes how the quantity demanded of a good or service responds to a change in its price. Specifically, it is the percentage change in the quantity demanded divided by the percentage change in price. This measure can tell us a lot about consumer behavior and market dynamics. An important factor affecting this elasticity is the time horizon. In the short term, consumers may not be able to significantly change their consumption habits in response to price changes due to various constraints. However, in the long term, they have more time to find substitutes or adjust their consumption, thus the elasticity of demand may increase.
Thus, at one end of the demand curve, with a large percentage change in quantity demanded over a small percentage change in price, the elasticity value would be high, meaning demand is relatively elastic. Conversely, at the other end, the numerator is small, and the denominator is large, suggesting inelastic demand. As we move along the demand curve, elasticity changes because the percentage changes in quantity and price vary with the price points and quantities considered.