What refers to the responsiveness of demand to price changes?

The concept that refers to the responsiveness of demand to price changes is known as Price Elasticity of Demand. This economic measure quantifies how much the quantity demanded of a good or service changes in response to a change in its price. A high price elasticity indicates that consumers are relatively sensitive to price changes; a small increase in price might lead to a significant drop in the quantity demanded. Conversely, if the price elasticity is low, consumers are less sensitive to price changes, meaning a price increase would lead to a relatively smaller decrease in the quantity demanded.

Understanding Price Elasticity of Demand is crucial for businesses and policymakers as it helps in making informed decisions regarding pricing strategies, taxations, and economic forecasts. The term encapsulates both the degree of responsiveness and the direction of the change in demand concerning price fluctuations.

In contrast, the other choices do not accurately describe the relationship between demand and price changes. For instance, Supply Sensitivity focuses on how supply reacts to price changes, Demand Responsiveness is an informal term without a precise economic definition, and Cost Elasticity relates to how the quantity supplied reacts to changes in production costs, not prices of the goods themselves. Therefore, Price Elasticity of Demand is the correct concept that captures the interaction between demand and price