What does it mean when demand is described as elastic?

When demand is described as elastic, it means that consumer demand significantly changes in response to price changes. Specifically, an elastic demand implies that a small percentage change in price will lead to a larger percentage change in the quantity demanded. This behavior typically occurs for goods or services that have available substitutes or are considered non-essential, meaning consumers can easily adjust their purchasing habits if the price increases or decreases.

For instance, if the price of a brand of cereal increases, consumers may either reduce their quantity bought or switch to a cheaper alternative brand. This sensitivity to price changes is what characterizes elastic demand. In contrast, inelastic demand indicates that changes in price have little to no effect on the quantity demanded.

The other options describe different scenarios regarding demand behavior: the first option references a situation where demand changes less than the price, the second suggests demand remains unaffected by price changes, and the fourth option indicates that demand does not change regardless of price, all of which do not align with the definition of elastic demand.