A Level Economics AQA Practice Exam

In terms of elasticity, what happens if demand is elastic?

1. Quantity demanded changes significantly with price changes

2. Quantity demanded remains unchanged with price changes

3. Price changes have no effect on supply

4. Only high-income consumers are affected by price changes

The correct answer is: Quantity demanded changes significantly with price changes

When demand is considered elastic, it means that consumers are relatively responsive to changes in price. Therefore, if the price of a good or service changes, the quantity demanded changes significantly. This characteristic is generally quantified by an elasticity value greater than one, which highlights the degree of sensitivity in quantity demanded with respect to price changes. In practical terms, if the price of a product decreases, consumers will buy a significantly larger quantity of that product because they perceive it as a better deal. Conversely, if the price increases, the quantity demanded will drop considerably as consumers either look for substitutes or decide not to purchase the good at the higher price. The other response options do not accurately describe the nature of elastic demand. If demand were inelastic, it would imply that quantity demanded remains relatively stable despite price changes. The statement regarding price changes having no effect on supply does not pertain to the concept of demand elasticity. Finally, the notion that only high-income consumers are affected by price changes incorrectly narrows the impact of price changes to a specific demographic, ignoring the broader implications for all consumers, regardless of income.