What is the definition of an elastic demand?

An elastic demand is characterized by a situation where a change in price leads to a substantial change in the quantity demanded. Specifically, when the price increases, if the quantity demanded falls significantly, it indicates that consumers are highly responsive to price changes. This responsiveness typically reflects the availability of substitutes or the degree to which the good is considered a luxury rather than a necessity.

For example, if the price of a particular brand of cereal rises significantly and consumers switch to a cheaper brand, this demonstrates elastic demand. The greater the percentage change in quantity demanded compared to the percentage change in price, the more elastic the demand is considered to be. This concept is important in understanding consumer behavior and pricing strategies for businesses, as it highlights the sensitivity of consumers to changes in price for specific products.

In contrast, the other options describe scenarios where demand does not react strongly to price changes, which defines inelastic demand: no change in quantity demanded with price fluctuations or only slight adjustments when prices rise. These situations reflect a lack of consumer responsiveness, where consumers deem the product to be essential or lacking readily available alternatives.