Which is true regarding price elasticity of demand?

Question

BlackTom AI · Accepted Answer

Price elasticity of demand measures how much quantity demanded changes in response to a price change: Ed = (% change in Qd) / (% change in P). 1) Relevant knowledge points and concepts - Law of demand: ceteris paribus, price and quantity demanded move in opposite directions (inverse relationship). - Elasticity formula: Ed = (ΔQ/Q) / (ΔP/P). Because ΔQ and ΔP have opposite signs for normal goods, Ed is typically negative. - Interpretation: the magnitude (absolute value) of Ed indicates responsiveness; the sign indicates direction of the relationship. 2) Step-by-step reasoning - Start with the formula: Ed = (%ΔQ) / (%ΔP). - If price rises (positive %ΔP), quantity demanded falls (negative %ΔQ) by the law of demand, so Ed < 0. Conversely, if price falls, Ed > 0 in sign terms because %ΔQ > 0 and %ΔP < 0. - Therefore the defining fact about price elasticity is that it reflects an inverse relationship between price and quantity demanded (negative sign for typical goods). 3) Intermediate steps (illustrative calculation) - Suppose P rises 10% and Q falls 5%: Ed = (-5%)/(+10%) = -0.5. This negative value reflects the inverse relationship; the magnitude 0.5 shows inelastic demand. - If P falls 20% and Q rises 40%: Ed = (+40%)/(-20%) = -2.0 (or absolute value 2), indicating elastic demand with an inverse relationship. 4) Why the correct answer is correct - "Due to the law of demand, it always refers to an inverse relationship between price and quantity demanded" states the fundamental behavioral relationship that makes elasticity negative for normal goods. Elasticity is built on that inverse movement, so this is the core truth. 5) Why other options are incorrect - "The larger the value, the less responsive consumers are to price" is backwards: a larger absolute value of Ed means more responsiveness. For example, |Ed| = 2 indicates more responsiveness than |Ed| = 0.5. - "It is usually expressed as a negative value" is a notation/convention point: while elasticity often is negative because of the inverse relationship, many texts report absolute values for ease. Thus it’s not the defining conceptual statement. - "All of these" is wrong because the first and notation statements are incorrect or at best incomplete. 6) Conclusion Because elasticity fundamentally captures the inverse relationship between price and quantity demanded (per the law of demand), the provided correct answer is confirmed: due to the law of demand, it always refers to an inverse relationship between price and quantity demanded.

Which is true regarding price elasticity of demand?Single choice

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