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Price elasticity of demand is defined as the percentage change in quantity demanded divided by which of the following?
AThe percentage change in supply
BThe percentage change in income
CThe percentage change in advertising
DThe percentage change in price
Answer & Solution
Correct answer: D. The percentage change in price
1. Price elasticity measures responsiveness of quantity demanded to a change in the good's own price.
2. The formula is Ep = (% change in quantity demanded) / (% change in price).
3. Income would give income elasticity, advertising gives advertising elasticity.
4. So the denominator here is the percentage change in price.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.17_
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