Question

Elasticity measures _____

Select one:

a. the long-run price trends in an economy.

b. the ability of a firm to introduce new products.

c. the responsiveness of decision makers to changes in price, income, and other variables.

d. the profitability of investment in an industry.

e. the strength of an economy's tendency to recover from recession.

Answer 1

Answer - Elasticity measures the responsiveness of decision makers to changes in price, income, and other variables. ( Option C )

Explanation -:
Elasticity of demand -:
It is the numerical measure of degree of responsiveness in quantity demanded due to change in price of that commodity. It is measured by following equation-:

Elasticity of supply -:
It is the numerical measure of degree of responsiveness in quantity supplied due to change in price of that commodity. It is measured by following equation-:
e_s = ( % change in quantity supplied / % change in price )

Income Elasticity of demand -:
It is the numerical measure of degree of responsiveness in quantity demanded due to change in income of consumer.It is measured by following equation-:
e_I = ( % change in quantity demanded / % change in income )
e_I = (dQ / dI ) ( I / Q)

Cross Elasticity of demand -:
It is the numerical measure of degree of responsiveness in quantity demanded of a commodity due to the change in price of related commodity .It is measured by following equation-:
e_C = ( dQ_X / dP_Y ) ( P_Y / Q_X )