What type of demand occurs when a price change leads to a proportionately larger change in quantity demanded?

When a price change results in a proportionately larger change in quantity demanded, this is described as elastic demand. This means that consumers are quite responsive to price changes; when prices decrease, the quantity demanded increases significantly, and conversely, when prices increase, the quantity demanded decreases sharply. The responsiveness, or elasticity, indicates the degree to which demand reacts to price changes.

For example, if the price of a good drops by 10% and as a result, the quantity demanded increases by 20%, the demand for that good is elastic. This concept is crucial for businesses in pricing strategy, as it helps them understand how changes in prices are likely to affect their sales and revenue.

In contrast, inelastic demand indicates that the quantity demanded changes very little with a price change; unitary demand refers to a situation where the percentage change in quantity demanded is equal to the percentage change in price, and derived demand relates to demand that arises not for its own sake but for the goods or services that it helps to produce.