Western Governors University (WGU) ECON5000 C211 Global Economics for Managers Practice Exam

Price elasticity of demand refers to the responsiveness of the quantity demanded of a good or service to changes in its price. Specifically, it measures how much the quantity demanded will change in percentage terms for a one percent change in price. This concept is crucial for understanding consumer behavior and can help managers and economists predict how a change in price will affect overall demand for their products.

When the price elasticity of demand is high (elastic), even a small change in price leads to a relatively large change in the quantity demanded. Conversely, if the demand is inelastic, significant changes in price result in only minor changes in quantity demanded. Understanding this relationship is vital for effective pricing strategies, revenue forecasting, and market analysis.

The other options do not accurately capture the essence of price elasticity of demand. For instance, while the relationship between income and demand can be described by concepts such as income elasticity, this is distinct from price elasticity. Similarly, the total demand for goods within an economy pertains to the overall market demand rather than the specific reaction of quantity demanded to price changes. Lastly, while consumer preferences can influence prices and demand, they do not directly define price elasticity. The key focus of price elasticity is the quantitative response of demand to changes in price.