How is elasticity defined in economics?

Elasticity in economics is fundamentally defined as the responsiveness of quantity demanded or supplied to changes in price. Specifically, it measures how much the quantity demanded or supplied of a good or service reacts to a change of one percentage point in its price. This concept is crucial for understanding how consumers respond to price changes, which in turn affects market dynamics, such as pricing strategies, tax policies, and consumer behaviors.

When considering option B, it clearly aligns with the standard economic definition of elasticity, capturing both the concept of percentage change and its relationship to price changes. Understanding elasticity allows businesses and policymakers to make informed decisions based on predicted consumer behavior in response to price fluctuations.

In contrast, other options do not accurately encapsulate the concept of elasticity. The first option regarding changes in supply due to policy changes speaks more to a potential determinant of supply rather than defining elasticity itself. The third option addresses overall market demand, which is not specific to the responsiveness of quantity to price. Lastly, the fourth option about price stability does not relate to the sensitivity of demand or supply in response to price changes, thus missing the core aspect of elasticity.