The responsiveness of one variable to a change in another is quantified using a specific calculation. This calculation expresses the percentage change in one variable divided by the percentage change in another. For instance, if a 10% increase in price leads to a 5% decrease in quantity demanded, the calculated value indicates the magnitude of consumer sensitivity to that price change.
Understanding this proportional change is fundamental for informed decision-making in various fields. Businesses utilize this understanding to optimize pricing strategies. Governments employ it when designing tax policies. Furthermore, its historical roots lie in early economic analyses seeking to quantify market dynamics and predict consumer behavior.