12. What is elasticity of demand?
(1) Demand that is not very sensitive to a
change in price
(2) Demand that is very sensitive to a change
in price
(3) Demand whose elasticity is exactly equal
to 1
(4) A measure of how consumers react to a
change in price.

(4) A measure of how consumers react to a  change in price.

Explanation:

The elasticity of demand is simply the change in demand due to change in the price of a product. As we know demand is proportionate to the price of a product, when products are produced at a lower  price, there is an increase in the demand.Similarly, if products are produced at a higher price, the demand also falls. The elasticity of demand is a measure of how consumers react to a  change in price. It helps consumers to understand the market price of a commodity and thereby, reacts according to the price.

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