Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following best defines *Elasticity* in economic terms?

1. The impact of tariffs on imports

2. The relationship between two variables

3. The measures of national output

4. The effects of market competition

The correct answer is: The relationship between two variables

Elasticity in economic terms refers to the responsiveness of one variable to changes in another variable. Specifically, it often measures how quantity demanded or supplied changes in response to price changes. For instance, price elasticity of demand indicates how much the quantity demanded of a good changes when the price of that good changes. The concept is critical in understanding consumer behavior and the effects of market conditions on pricing and demand. While the other options touch upon important economic concepts, they don't accurately capture the essence of elasticity. The impact of tariffs on imports relates more to trade economics rather than elasticity itself. Measures of national output, like GDP, focus on economic performance rather than responsiveness of variables. The effects of market competition might involve elasticity indirectly but do not define it. Thus, the choice that highlights the relationship between two variables is the most accurate definition of elasticity in economics.