What is price elasticity of demand?

Price elasticity of demand is defined as a measure of how much the quantity demanded of a good reacts to a change in its price. This concept helps analysts and businesses understand consumer behavior in response to price fluctuations. When the price of a good decreases, typically, the quantity demanded increases, and vice versa. The elasticity can be categorized as elastic, inelastic, or unitary, depending on the degree of responsiveness.

If the demand is elastic, a small change in price will lead to a significant change in the quantity of the product demanded. Conversely, if demand is inelastic, price changes will have little effect on the quantity demanded. This metric is crucial for forecasting sales, setting pricing strategies, and making informed production decisions.

The other options don't accurately reflect the concept of price elasticity of demand. The first option addresses the quantity of goods rather than the response to price changes, while the third suggests a static value which does not capture the dynamic nature of consumer demand. The fourth option refers to supply rather than demand, which is unrelated to the concept of elasticity in the context of consumer demand.