What does price elasticity of demand primarily measure?

Price elasticity of demand primarily measures the responsiveness of the quantity demanded of a good or service to changes in its price. When the price of a product changes, consumers may react by buying either more or less of that product; this relationship is quantified by the price elasticity of demand. If a product has high elasticity, a small change in price will result in a significant change in the quantity demanded. Conversely, if a product has low elasticity, quantity demanded will change only slightly even with a substantial price change.

Understanding this concept is crucial for businesses and policymakers as it aids in forecasting how total revenue will shift in response to price changes, as well as when determining pricing strategies. The other options focus on different aspects of demand or market dynamics, such as income levels, consumer preferences, or general market demand, but these do not capture the specific relationship between price changes and quantity demanded that the price elasticity of demand encapsulates.