Association of Chartered Certified Accountants (ACCA) Certification Practice Test

How can one remember the elasticity equations?

1. By focusing on supply over demand

2. By using total costs as a denominator

3. By applying the formula Demand ÷ money (price, income, etc.)

4. By comparing fixed costs with variable costs

The correct answer is: By applying the formula Demand ÷ money (price, income, etc.)

The correct answer highlights the relationship between demand and elasticity in a way that encapsulates key variables. Elasticity measures how the quantity demanded of a good responds to changes in various factors like price or income. By using the formula Demand ÷ money (price, income, etc.), one captures the essence of how demand is influenced by monetary changes, establishing a direct correlation that reflects price elasticity of demand. This approach is beneficial because it reinforces the understanding that changes in price do not occur in isolation but rather in relation to how demand reacts. By framing the concept in terms of how demand interacts with price or income changes, it makes it easier to recall and apply elasticity equations effectively. The other options, while they offer different perspectives, do not encapsulate the fundamental relationship between demand and monetary variables in the same manner. Emphasizing supply over demand or focusing on total costs does not directly relate to the core principles of elasticity. Similarly, comparing fixed costs with variable costs diverts from the demand and price interaction that is central to understanding elasticity. Therefore, the chosen answer not only serves as a memory aid but also aligns closely with the underlying principles governing elasticity in economics.