What does the formula for elasticity represent?

The formula for elasticity, specifically price elasticity of demand, represents the responsiveness of quantity demanded to a change in price. This is mathematically expressed as the percentage change in quantity demanded divided by the percentage change in price. By focusing on the relationship between these two variables, the elasticity measure provides insights into how sensitive consumers are to price changes.

When you understand elasticity in this context, it becomes clearer why this particular choice is the correct answer. It effectively illustrates the core concept of elasticity, which is about measuring the extent to which a change in price will influence the quantity demanded of a good or service. This relationship is crucial for businesses and economists when making decisions about pricing strategies and understanding consumer behavior in response to price fluctuations.

Other options do not accurately reflect the concept of elasticity. For instance, calculating price change over quantity change or quantity change over price change does not convey the same informational context regarding sensitivity to price changes. Additionally, considering fixed cost divided by total revenue relates to profitability, not the responsiveness of quantity demanded to price changes.