In which scenario is demand considered elastic?

• A. When quantity demanded decreases despite a price increase
• B. When demand remains constant regardless of price
• C. When a price decrease leads to a proportionally larger increase in quantity demanded
• D. When consumers ignore price changes

Answer: (C)

Demand is considered elastic when a change in price leads to a more than proportional change in the quantity demanded. In this context, option C states that a price decrease results in a proportionally larger increase in quantity demanded. This illustrates elasticity because consumers are highly responsive to price changes; a lower price significantly incentivizes them to buy more of the product.

When demand is elastic, small changes in price create significant changes in how much of the product consumers want. This behavior is typically seen in luxury items or non-essential goods, where consumers can easily adjust their purchasing habits based on price shifts. Understanding this relationship helps businesses strategize pricing and anticipate consumer behavior effectively.