Question

Which of the following is the most accurate definition of the price elasticity of demand?

a. The percentage change in quantity demanded divided by the percentage change in price.

b. The total change in quantity demanded divided by the average price.

c. The total change in demand divided by the total change in price.

d. The percentage change in quantity demanded divided by the percentage change in the price of a substitute.

Answer 1

Before answering this question we have to understand the difference between demand and quantity demanded

When there is only one factor present and that is price then there will be change in the quantity demanded

But if more than pricr factor is present like presence of substitutes, income level of a consumer, expectation of a consumer etc then there will be change in the demand

The change in demand is shown by a shift of the demand curve but a change in quantity demanded is shown by the movement on the demand curve either in upward or downward movement

So here in the given question the price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in the price

Since it is for the only one good and the factor present is only price hence the correct answer is option A

option B is neglected because it is talking about average price

Option cis neglected because there is a change in demand not quantity demanded

Option dis neglected because it is not true that it there will be change in the price of substitute

Hence the correct answer is option C