Price elasticity of demand measures what effect?

Disable ads (and more) with a membership for a one time $4.99 payment

Prepare for UCF MAR3023 Exam 4. Study effectively with quizzes and flashcards. Enhance understanding with multiple choice questions, each featuring hints and explanations. Be confident and exam-ready!

Price elasticity of demand specifically examines how a change in the price of a good or service influences the quantity demanded by consumers. This concept is vital for understanding consumer behavior and market dynamics. When the price of a product rises or falls, price elasticity measures the extent to which that price change leads to a corresponding increase or decrease in the quantity that consumers are willing to purchase.

For example, if a small increase in price results in a significant drop in quantity demanded, the product is said to be elastic. Conversely, if a price change has little effect on the quantity demanded, the product is inelastic. This measurement helps businesses and economists determine pricing strategies, forecast revenues, and predict consumer reactions to price changes.

The other options encompass different aspects of marketing and economics. The influence of advertising pertains more to how marketing strategies can impact demand, rather than price specifically. The relationship between income and demand relates to income elasticity, which focuses on how changes in consumer income affect demand rather than price. Long-term consumer behavior trends deal with patterns over time and are not directly tied to immediate price changes.