The price elasticity of demand measures how responsive quantity demanded is to changes in price. If the percentage change in quantity demanded is larger than the percentage change in price, the demand is described as:

• A. Inelastic
• B. Elastic
• C. Unit elastic
• D. Perfectly elastic

Answer: (B)

Elasticity of demand measures how sensitive quantity demanded is to changes in price. When the percentage change in quantity demanded is larger than the percentage change in price, the demand is elastic. In other words, the absolute value of the price elasticity of demand is greater than 1. This means buyers substantially adjust how much they purchase in response to price moves, often seen with goods that have close substitutes or are not essential.

For example, if price goes up 5% and quantity demanded falls by 12%, the elasticity magnitude is 12/5 = 2.4, which is elastic. In contrast, if quantity responded less than price (elasticity less than 1), demand would be inelastic. If the percentage changes were equal, it would be unit elastic (elasticity = 1). If quantity hardly changed at all with price, it would be perfectly inelastic (elasticity near 0).