Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 430

What is the formula for price elasticity of demand?

% change in quantity demanded x % change in price

% change in price / % change in quantity demanded

% change in quantity demanded / % change in price

The formula for price elasticity of demand measures how responsive the quantity demanded of a good is 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. This relationship reflects how consumers react to price changes; if the price elasticity of demand is greater than 1, demand is considered elastic, meaning that consumers are quite responsive to price changes. Conversely, if the elasticity is less than 1, demand is inelastic, indicating that consumers are less responsive to price fluctuations.

Understanding this formula is crucial for businesses and economists as it helps in making pricing decisions and forecasting the impact of price changes on sales volume. The other options misrepresent the relationship by incorrectly reversing the ratio or suggesting unrelated calculations that do not provide the appropriate measure of demand responsiveness.

Get further explanation with Examzify DeepDiveBeta

Absolute value of price change / quantity change

Next Question

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy