What does "demand elasticity" refer to?

• A. The change in supply relative to production factors
• B. The impact of seasonal trends on sales
• C. The sensitivity of quantity demanded to price changes
• D. The government intervention in setting prices

Answer: (C)

Demand elasticity refers to the sensitivity of quantity demanded to price changes. It measures how much the quantity demanded of a product or service will change when there is a change in its price. When demand is elastic, a small price decrease can lead to a significant increase in the quantity demanded, whereas a price increase may lead to a substantial decrease in quantity demanded. Conversely, if demand is inelastic, changes in price will have a relatively smaller effect on the quantity demanded.

This concept is crucial for businesses and policymakers because it helps them understand how consumers will react to price changes and how sales and revenue might fluctuate in response to those changes. For instance, if a company knows that the demand for its product is elastic, it might be more cautious about raising prices, as this could lead to a significant drop in sales. In contrast, if the demand is inelastic, the company might have more leeway to increase prices without fearing a large drop in sales volume.

The other responses address different economic concepts and do not pertain directly to the idea of demand elasticity. For example, the change in supply relative to production factors specifically involves supply-side economics rather than demand; seasonal trends pertain to time-based influences on sales, and government intervention relates to policy measures impacting pricing