Which term describes the measure of responsiveness of quantity demanded or supplied to price changes?

• A. Demand
• B. Law of Demand
• C. Law of Supply
• D. Elasticity

Answer: (D)

Elasticity is the measure of how much quantity demanded or supplied responds to price changes. It captures the magnitude of the reaction, not just the direction. When price changes, elasticity tells you how big the resulting change in quantity will be, expressed as a percentage change in quantity divided by the percentage change in price. If demand or supply is highly responsive, elasticity is large (greater than 1); if it’s only slightly responsive, elasticity is small (less than 1); if price and quantity move in proportional amounts, elasticity is about 1. This concept applies to both sides of the market: price elasticity of demand and price elasticity of supply.

This differs from simply describing demand as the relationship between price and quantity demanded, or from the laws that describe the direction of moves (demand falls as price rises; supply rises as price rises). Those describe direction or the general relationship, not how strongly quantities react to price changes.