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Price elasticity of demand (Ep) is defined as:
AChange in demand minus change in price
BAbsolute change in price divided by quantity
CSum of demand and price changes
DProportionate change in demand divided by proportionate change in price
Answer & Solution
Correct answer: D. Proportionate change in demand divided by proportionate change in price
1. Marshall's definition (and ICMAI's): Ep = (proportionate ΔQ) / (proportionate ΔP).
2. Equivalently Ep = (dQ/Q) / (dP/P) = (dQ/dP) × (P/Q).
3. It is a pure ratio of proportionate changes, hence unit-free.
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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