Which concept explains how price changes influence consumer demand?

• A. Elasticity of demand
• B. Distribution
• C. Diversity
• D. Destination

Answer: (A)

Elasticity of demand explains how price changes influence consumer demand. It measures how responsive the quantity demanded is when price moves: if a price drop leads to a large increase in purchases, demand is elastic; if quantity hardly changes with price, demand is inelastic. Factors shaping elasticity include how easily consumers can substitute one good for another, whether the item is a necessity or a luxury, how big a share of income the purchase represents, and the time period considered. For example, people may quickly switch to substitutes or cut back on a luxury item when prices rise, showing higher elasticity, while essential goods often show inelastic demand in the short run. The other terms—distribution, diversity, and destination—relate to market structure, variety, or location, not to how price changes affect demand.