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Practice ACCA ACCA BT — Business & Technology Practice Exam 4Question 03

Medium2 marksMultiple Choice

Syllabus A: The business organisation and its external environmentSyllabus AMicroeconomicsElasticity

ACCA · Question 03 · Syllabus A: The business organisation and its external environment

Section A

Verdant Retreats operates ultra-luxury eco-lodges in remote rainforests. They recently increased their booking prices by 15%, which resulted in only a 2% drop in booking volume. What does this indicate about the price elasticity of demand for Verdant Retreats' services?

Q: What mistakes do candidates make on this ACCA question?

Reversing the definitions of elastic and inelastic.

Answer options:

Demand is perfectly elastic.

Demand is highly elastic.

Demand is unit elastic.

Demand is highly inelastic.

How to approach this question

Compare the percentage change in quantity demanded (2%) to the percentage change in price (15%). Since 2% < 15%, demand is inelastic.

Full Answer

D.Demand is highly inelastic.✓ Correct

Price elasticity of demand measures responsiveness of quantity demanded to a change in price. Because the percentage change in quantity demanded (2%) is much less than the percentage change in price (15%), the demand is inelastic. Luxury, unique goods often exhibit inelastic demand.

Common mistakes

Reversing the definitions of elastic and inelastic.

Question 02 All questions Question 04

Practice the full ACCA BT — Business & Technology Practice Exam 4

52 questions · hints · full answers · grading

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