In economic terms, what does elasticity measure?

Elasticity measures the responsiveness of quantity demanded or supplied to changes in various factors, primarily price. In the context of demand, it specifically focuses on how much the quantity demanded of a good responds to a change in its price. A higher elasticity indicates that consumers are more responsive to price changes, meaning that a small change in price can result in a large change in quantity demanded. Conversely, low elasticity suggests that quantity demanded is less sensitive to price changes.

This concept is crucial in microeconomics as it helps businesses and policymakers understand how alterations in pricing (such as through taxes, subsidies, or market conditions) will influence consumer purchasing behavior. The other options, while related to different aspects of economic theory, do not accurately capture the specific nature of elasticity as it pertains to consumer response to price changes. For instance, maximum production capacity and demand stability across income levels are topics more aligned with production function and income elasticity, which measure different dynamics within the economic framework.