What is the elasticity equation for measuring demand?

The elasticity equation for measuring demand is rooted in understanding how changes in price affect the quantity demanded of a good or service. The correct formulation for elasticity is that it measures the responsiveness of quantity demanded to changes in price. Specifically, it is defined as the percentage change in quantity demanded divided by the percentage change in price. This relationship helps economists determine whether demand is elastic (sensitive to price changes) or inelastic (less sensitive to price changes).

Using this equation, if a small change in price leads to a large change in the quantity demanded, the elasticity would yield a high value, indicating elastic demand. Conversely, if a change in price results in only a slight change in quantity demanded, the elasticity would be low, suggesting inelastic demand. This concept is crucial for businesses and policymakers as it informs pricing strategies and forecast consumer reactions to price changes.

The other options don't correctly capture this relationship; for instance, elasticity is not about total demand or quantity supplied in relation to price, as reflected in other choices. These alternative formulations would provide incorrect insights into how demand works concerning price adjustments.