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| Microeconomic theory suggests that the quantity demanded for any good is a function of relative prices, consumer real income, and consumer tastes. If tastes are held constant, then changes in the other two independent variables will induce a change in the dependent variable, i.e., the quantity demanded for a particular good. The concept that measures the responsiveness of quantity demanded to changes in the independent variable is called elasticity. Questions A. Define the concept of price elasticity. B. Explain the significance of the price elasticity concept for a firm’s management. |