If a small price change leads to a larger percentage change in quantity demanded, the elasticity is:

• A. Less than 1
• B. Equal to 1
• C. Greater than 1
• D. Undefined

Answer: (C)

Elasticity of demand measures how much quantity demanded responds to price changes. It’s calculated as the percentage change in quantity demanded divided by the percentage change in price. When a small price change causes a larger percentage change in quantity demanded, the numerator is larger than the denominator, so the elasticity is greater than one. That means demand is price elastic: consumers react strongly to price changes. For example, a 1% drop in price leading to a 2% increase in quantity demanded gives an elasticity of 2, which is greater than one. In contrast, elasticity less than one indicates inelastic demand, equal to one is unit elastic, and undefined would occur if the price change is zero.