Which formula represents price elasticity of demand?

Which formula represents price elasticity of demand?

• A. E_d = (% change in price) / (% change in Q_d)
• B. E_d = (% change in Q_d) / (% change in price)
• C. E_d = (% change in Q_d) / (% change in income)
• D. E_d = (% change in income) / (% change in price)

Answer: (B)

Price elasticity of demand measures how much buyers respond to a price change. It is defined as the percentage change in quantity demanded divided by the percentage change in price. This definition captures the idea that the quantity demanded moves in the opposite direction to price and shows how strongly that response occurs. For example, if price rises by 10% and quantity demanded falls by 5%, the elasticity is -0.5, indicating relatively inelastic demand. If you swapped the ratio, you’d be looking at how price changes respond to quantity changes rather than how quantity responds to price, which isn’t the standard measure of price responsiveness. Using income instead of price would describe income elasticity of demand, not price elasticity. So the correct formula uses the percent change in quantity demanded in the numerator and the percent change in price in the denominator.

Price elasticity of demand measures how much buyers respond to a price change. It is defined as the percentage change in quantity demanded divided by the percentage change in price. This definition captures the idea that the quantity demanded moves in the opposite direction to price and shows how strongly that response occurs. For example, if price rises by 10% and quantity demanded falls by 5%, the elasticity is -0.5, indicating relatively inelastic demand. If you swapped the ratio, you’d be looking at how price changes respond to quantity changes rather than how quantity responds to price, which isn’t the standard measure of price responsiveness. Using income instead of price would describe income elasticity of demand, not price elasticity. So the correct formula uses the percent change in quantity demanded in the numerator and the percent change in price in the denominator.