DECA+ Business Management and Administration Practice Exam

What does elastic demand indicate?

1. Demand remains unchanged with price variations

2. Demand changes according to price fluctuations

3. Demand is unaffected by consumer preferences

4. Demand is stable regardless of supply changes

The correct answer is: Demand changes according to price fluctuations

Elastic demand indicates that the quantity demanded of a good or service changes significantly in response to price fluctuations. When the price increases, consumers may purchase much less of the product, and conversely, if the price decreases, they may buy a greater quantity. This responsiveness to price changes is a hallmark of elastic demand, which is often found in markets for non-essential goods where consumers can easily adjust their purchasing behavior based on price changes. In contrast, options that describe demand remaining unchanged or being stable regardless of changes do not align with the characteristics of elastic demand. Likewise, saying that demand is unaffected by consumer preferences misses the importance of how shifts in preferences can also affect demand elasticity. Thus, the defining feature of elastic demand is its sensitivity to price changes, illustrating the nature of how consumers make purchasing decisions.