What principle explains how consumers adjust their purchasing behavior when prices change?

Price elasticity is the principle that describes how consumers adjust their purchasing behavior in response to changes in price. It measures the responsiveness of quantity demanded to a change in price. When the price of a good or service increases, consumers may buy less of it, or switch to a substitute product that is more affordable. Conversely, if the price decreases, consumers may find it more attractive and increase their purchases. The degree to which quantity demanded changes with these price changes defines the price elasticity of that product.

This concept helps businesses and economists understand consumer behavior and can inform pricing strategies. For example, if a product is highly elastic, even a small increase in price could lead to a significant drop in sales, prompting businesses to reconsider their pricing models. Price elasticity essentially captures the relationship between price changes and consumer purchasing patterns, making it fundamental in understanding market dynamics.