A product that is highly responsive to price changes has

• A. elastic demand.
• B. inelastic demand.
• C. unit elastic demand.
• D. perfectly inelastic demand.

Answer: (B)

Price elasticity of demand is about how much quantity demanded responds to a price change. If a product is highly responsive, a small price change causes a relatively larger change in quantity demanded, so the elasticity magnitude is greater than one. This is called elastic demand. In elastic demand, lowering price boosts total revenue by increasing quantity more than the price drop; raising price reduces revenue for the same reason. By contrast, inelastic demand means quantity changes little with price (elasticity less than one), unit elastic means the percentage change in quantity equals the percentage change in price, and perfectly inelastic means quantity doesn’t respond at all to price changes. So a product that is highly responsive to price changes fits elastic demand.