What is being measured when analyzing how much a change in price affects demand?

The measurement of how much a change in price affects demand is referred to as Price Elasticity of Demand. This concept quantifies the responsiveness of the quantity demanded of a good or service to a change in its price. Specifically, it is calculated by taking the percentage change in quantity demanded and dividing it by the percentage change in price.

Understanding Price Elasticity of Demand is crucial for businesses and policymakers. If the elasticity is greater than one, demand is considered elastic, indicating that consumers are highly responsive to price changes. If it is less than one, demand is inelastic, meaning consumers are less sensitive to price fluctuations. This information can guide pricing strategies and tax policies, as well as provide insights into consumer behavior in various market conditions.

The other terms, while related to demand analysis, do not specifically capture the relationship between price changes and changes in quantity demanded. The Demand Curve visually represents this relationship but does not measure it. The Demand Function is a mathematical representation of the demand model, showing how the quantity demanded relates to various factors. Market Equilibrium refers to the point where supply equals demand but does not focus specifically on the elasticity concept.