Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the ACCA Certification Exam with interactive quizzes and detailed explanations. Get a head start on your success with our comprehensive study tools.

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What economic factor is primarily assessed by the elasticity of demand?

The effect of fiscal policy on spending
The relationship between demand and price changes
The influence of population growth on production
The correlation between employment rates and consumer spending

The correct answer is: The relationship between demand and price changes

The elasticity of demand primarily assesses the relationship between demand and price changes. Specifically, it measures how much the quantity demanded of a good changes in response to a change in its price. If demand is elastic, a small price change leads to a significant change in the quantity demanded. Conversely, if demand is inelastic, quantity demanded changes little when the price changes. This concept is crucial for businesses and policymakers because it helps them understand consumer behavior and make informed decisions regarding pricing strategies and economic policies. For instance, knowing the elasticity of demand allows firms to optimize their pricing to maximize revenue, while it can inform government decisions about tax policies that might affect consumption. Other options, while relevant in economic discussions, do not directly correlate with the concept of elasticity. The effect of fiscal policy on spending, for example, relates more to overall economic activity rather than the specific relationship between price and quantity demanded.