When is demand considered elastic?

Demand is considered elastic when the elasticity of demand is greater than one. This means that a percentage change in price will result in a larger percentage change in the quantity demanded. Essentially, consumers are quite responsive to price changes in this scenario. For example, if the price of a product decreases by 10% and this leads to a 15% increase in the quantity demanded, the demand is elastic because the elasticity of demand would be calculated as 1.5 (15%/10%). This high responsiveness indicates that consumers may be willing to buy significantly more of the product when its price drops, or conversely, significantly less when the price rises.

In contrast, when elasticity is less than one, demand is considered inelastic, indicating that consumers are less responsive to price changes. If quantity demanded remains constant despite price changes, it is indicative of perfectly inelastic demand, which is not the case for elastic demand. The option implying that price changes have no effect on demand describes perfectly inelastic demand as well. Thus, understanding that demand is elastic hinges on the numerical value of elasticity being greater than one highlights the relationship between price changes and consumer behavior.