What is described as elastic demand?

Elastic demand refers to a situation where a change in the price of a product or service results in a significant change in the quantity demanded by consumers. If the price of an item increases, for example, consumers may be less likely to purchase it, leading to a marked decrease in demand. Conversely, if the price drops, consumers might respond enthusiastically, significantly increasing their purchases. This relationship occurs because consumers are sensitive to price changes for elastic goods, which often include non-essential items where alternatives may be available.

This concept is crucial for businesses, as understanding the elasticity of demand helps in setting prices strategically. For products with elastic demand, small price changes can lead to large fluctuations in sales volume, influencing revenue and marketing strategies.