What is measured by price elasticity?

What is measured by price elasticity?

• A. The impact of marketing strategies on pricing
• B. The sensitivity of demand to changes in price
• C. The effectiveness of product advertising
• D. The correlation between supply and demand

Answer: (B)

Price elasticity measures the sensitivity of demand to changes in price. This concept is critical in understanding how consumers react to price fluctuations for a given product or service. When the price of a product increases, certain consumers may choose to buy less of that product, while others may stop buying it altogether if it is elastic. Conversely, if the product is inelastic, demand may not significantly change even if the price increases. Understanding price elasticity helps businesses make informed pricing decisions, predict consumer behavior, and develop effective pricing strategies. For example, if a product has high price elasticity, a business might decide to keep prices stable or lower them to increase sales, knowing that consumers will respond strongly to price changes. Other options refer to different aspects of business strategy and economics, such as the effectiveness of marketing or advertising (which do not inherently relate to demand sensitivity) or the relationship between supply and demand (which does not directly quantify the effect of price changes on demand). Thus, the measurement of price elasticity specifically focuses on how demand reacts to price changes.

Price elasticity measures the sensitivity of demand to changes in price. This concept is critical in understanding how consumers react to price fluctuations for a given product or service. When the price of a product increases, certain consumers may choose to buy less of that product, while others may stop buying it altogether if it is elastic. Conversely, if the product is inelastic, demand may not significantly change even if the price increases.

Understanding price elasticity helps businesses make informed pricing decisions, predict consumer behavior, and develop effective pricing strategies. For example, if a product has high price elasticity, a business might decide to keep prices stable or lower them to increase sales, knowing that consumers will respond strongly to price changes.

Other options refer to different aspects of business strategy and economics, such as the effectiveness of marketing or advertising (which do not inherently relate to demand sensitivity) or the relationship between supply and demand (which does not directly quantify the effect of price changes on demand). Thus, the measurement of price elasticity specifically focuses on how demand reacts to price changes.