ACCA Certification Complete Practice Test 2026

Elasticity generally refers to the relationship between two variables, particularly in economics where it measures how one variable responds to changes in another. Most commonly, it is used to describe the responsiveness of quantity demanded or supplied relative to a change in price, income, or other factors.

For example, price elasticity of demand illustrates how the quantity of a product demanded by consumers changes in response to a change in its price. If a small change in price results in a large change in quantity demanded, we say that the demand is elastic. Conversely, if the quantity demanded changes little with a significant change in price, the demand is inelastic.

This concept is crucial for businesses and policymakers because understanding elasticity helps in predicting consumer behavior, setting prices, and planning production levels. The other options, while related to economic concepts, do not specifically encapsulate the meaning of elasticity as it applies in these contexts.