Which of the following is true about elastic demand?

The concept of elastic demand revolves around how sensitive consumers are to changes in price. When demand is elastic, even a small change in price can lead to a significant change in the quantity demanded. This means that consumers are very reactive to price fluctuations; if prices rise, they might significantly reduce their purchases or look for alternatives, while a price drop could lead to a substantial increase in quantity demanded.

This characteristic of consumer behavior indicates a strong degree of price sensitivity, which is central to the understanding of elastic demand. Therefore, it accurately reflects the key aspect of elastic demand that is being assessed in the question.

Other explanations highlight elements of demand but do not encapsulate the essence of elasticity as effectively. For instance, stating that demand is unaffected by price changes inaccurately describes inelastic demand rather than elastic demand, while emphasizing proportional effects of price changes lacks specificity regarding the nature of consumer behavior. The notion that elastic demand applies only to luxury goods is also misleading, as many necessities can also exhibit elastic characteristics under certain circumstances, influenced by specific market conditions. Hence, the understanding of consumers' price sensitivity is the most defining feature of elastic demand.