Final answer:
The measure of the responsiveness of quantity demanded to changes in price is known as price elasticity of demand. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Price elasticity of demand can be classified as elastic, inelastic, or unit elastic.
Step-by-step explanation:
The measure of the responsiveness of quantity demanded to changes in price is known as price elasticity of demand. It measures how sensitive the quantity demanded is to changes in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
For example, if the price of a product increases by 10% and the quantity demanded decreases by 20%, the price elasticity of demand would be -2. This means that for every 1% increase in price, the quantity demanded decreases by 2%.
The price elasticity of demand can be classified into different categories:
Elastic: When the price elasticity of demand is greater than 1, it means that the quantity demanded is highly responsive to changes in price. A small change in price leads to a large change in quantity demanded.
Inelastic: When the price elasticity of demand is less than 1, it means that the quantity demanded is not very responsive to changes in price. Even a large change in price leads to a small change in quantity demanded.
Unit elastic: When the price elasticity of demand is equal to 1, it means that the percentage change in quantity demanded is equal to the percentage change in price. The quantity demanded changes in proportion to the change in price.