What is the term for the sensitivity of demand to changes in price?

• A. Price Elasticity
• B. Price Inelasticity
• C. Product Line
• D. Primary Research

Answer: (A)

The term describes how responsive buyers are to price changes: price elasticity of demand. It shows how much quantity demanded changes when the price moves. If demand is elastic, a small drop in price leads to a proportionally larger increase in sales, potentially boosting total revenue; if demand is inelastic, price changes have little effect on quantity demanded, so revenue tends to move with the price. The usual rule is to look at the percentage change in quantity demanded divided by the percentage change in price to get elasticity, with values greater than 1 in absolute terms meaning elastic, less than 1 meaning inelastic, and exactly 1 meaning unit elastic. This concept helps determine optimal pricing, such as whether raising prices would significantly reduce volume or whether lowering prices would substantially increase sales. Not related choices include price inelasticity (low responsiveness), product line (range of products offered), and primary research (collecting new data).