Certified Supply Chain Professional (CSCP) Practice Exam

The term "elasticity of demand" is synonymous with which concept?

1. Law of supply

2. Equilibrium price

3. Law of demand

4. Marginal utility

The correct answer is: Law of demand

Elasticity of demand refers to how responsive the quantity demanded of a good or service is to changes in its price. When talking about the law of demand, it establishes that, all else being equal, as the price of a good decreases, the quantity demanded typically increases, and vice versa. The concept of elasticity builds on this relationship by measuring the degree of responsiveness in quantity demanded relative to price changes. Understanding elasticity helps businesses and policymakers predict how changes in price can influence consumer behavior, and it is a critical component of demand analysis in economics. This relationship is crucial for making informed decisions in pricing strategies, market entry, and assessing consumer sensitivity to price changes. The other concepts provided do not directly relate to the responsiveness of quantity demanded in relation to price, making them distinct from elasticity of demand. For example, the law of supply relates to how the quantity supplied responds to price changes, equilibrium price is the point where supply and demand meet, and marginal utility deals with the added satisfaction received from consuming one more unit of a good or service.