Which type of demand indicates a significant response to price changes?

Elastic demand refers to a situation where the quantity demanded of a good or service changes significantly in response to price changes. Specifically, if the price of a product decreases, consumers tend to purchase much more of it, and conversely, if the price increases, they tend to buy much less. This responsiveness is quantified with a price elasticity coefficient greater than one, which signifies that the percentage change in quantity demanded is larger than the percentage change in price.

For example, goods that are considered luxury items or non-essential items often display elastic demand because consumers can easily forgo these purchases when prices rise or seek to buy more when prices fall. Understanding elastic demand is crucial for businesses when setting prices and anticipating consumer behavior in different market conditions.