The correct answer is: D. ratio of the percentage change in price to the percentage change in quantity demanded
Price elasticity of demand is a measure of how much the quantity demanded of a good or service responds to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
A price elasticity of demand of less than 1 indicates that demand is inelastic, meaning that a change in price will have a relatively small effect on the quantity demanded. A price elasticity of demand of greater than 1 indicates that demand is elastic, meaning that a change in price will have a relatively large effect on the quantity demanded.
A price elasticity of demand of 0 indicates that demand is perfectly inelastic, meaning that the quantity demanded will not change at all in response to a change in price. A price elasticity of demand of infinity indicates that demand is perfectly elastic, meaning that the quantity demanded will change infinitely in response to a change in price.
The price elasticity of demand is a useful tool for businesses to understand how consumers will respond to changes in price. It can also be used by governments to understand how consumers will respond to changes in taxes or subsidies.
Here is a brief explanation of each option:
- Option A: The ratio of the percentage change in quantity demanded to the percentage change in price is the correct answer. This is the definition of price elasticity of demand.
- Option B: The ratio of the change in price to the change in quantity demanded is not the correct answer. This is the definition of the slope of the demand curve.
- Option C: The ratio of the change in quantity demanded to the change in price is not the correct answer. This is the definition of the marginal revenue.
- Option D: The ratio of the percentage change in price to the percentage change in quantity demanded is not the correct answer. This is the definition of the price elasticity of demand.