Future Business Leaders of America (FBLA) Hospitality Management Practice Test

Define "elasticity of demand".

1. A measure of how demand for a product responds to changes in price

2. The degree of consumer satisfaction with a product

3. The total demand for all products in an economy

4. The fixed demand for essential goods

The correct answer is: A measure of how demand for a product responds to changes in price

Elasticity of demand refers specifically to the responsiveness of the quantity demanded of a good or service to changes in its price. When the price of a product changes, elasticity of demand allows businesses and economists to anticipate how much the quantity demanded will increase or decrease as a result. If demand is elastic, consumers will significantly reduce their purchases if prices rise, while an inelastic demand suggests that consumers will continue to buy the product despite price increases. In this context, the measure provided in the correct choice captures the fundamental concept of elasticity, which is central to understanding consumer behavior and making pricing decisions in business strategies. Understanding elasticity also aids in forecasting revenue changes as a result of pricing adjustments, a key consideration in hospitality management where pricing impacts both demand and customer satisfaction.