How is price elasticity of demand defined?

The concept of price elasticity of demand is defined as the percentage change in quantity demanded relative to a percentage change in price. This measures how responsive consumers are to changes in price for a given good or service. A high elasticity indicates that a small change in price will lead to a larger change in the quantity demanded, while a low elasticity suggests that changes in price have little impact on the quantity demanded.

Understanding price elasticity is crucial as it informs businesses and policymakers about how changing prices may affect overall sales and revenue. For instance, if a product has high price elasticity, lowering the price could significantly increase sales, while for inelastic products, demand might not fluctuate much with price changes.

The other choices do not accurately capture this definition. For example, a change in quantity over time doesn't reflect the immediate relationship between price changes and demand. The demand curve slope is related but does not quantify the relationship between percentage changes in price and quantity demanded. Lastly, the effect of taxation on prices is a separate topic and does not pertain directly to how demand reacts to price changes. Therefore, the correct choice is the one that articulates the relationship between quantity demanded and price changes succinctly and accurately.