Economics and Personal Finance Practice Exam

An elastic demand or supply curve signifies high responsiveness to price changes. When a good or service has elastic demand, it means that even a small change in price will lead to a significant change in the quantity demanded. Consumers are sensitive to price fluctuations; for instance, if the price of a product increases, they may buy much less of it or switch to substitutes. Conversely, if prices decrease, the quantity demanded may increase substantially.

In terms of supply, elastic supply indicates that producers can quickly adjust the quantity they supply in response to price changes. If the price of a product rises, producers will likely increase production to capitalize on higher revenue, and if the price falls significantly, they may reduce output.

Elastic curves are critical for understanding market dynamics, especially for goods that are not necessities or have many substitutes available. This characteristic allows businesses and policymakers to predict how changes in price will influence overall supply and demand in the market.