What do we call the elasticity of demand when consumers are sensitive to changes in price?

The correct choice is elastic demand, which refers to a situation where consumers are highly responsive to changes in price. When the price of a good or service increases, the quantity demanded tends to decrease significantly, and conversely, if the price decreases, the quantity demanded rises substantially. This sensitivity indicates that consumers have alternatives available or consider the good to be non-essential, allowing their purchasing behavior to fluctuate with price changes.

In markets characterized by elastic demand, the price elasticity of demand coefficient is greater than one. This means that percentage changes in price lead to larger percentage changes in quantity demanded. Elastic demand is typical for luxury items, non-essential goods, or goods with many substitutes.

Understanding elastic demand is important for businesses and policymakers, as it can influence pricing strategies and tax policies. If a good has elastic demand, increasing its price could lead to a significant drop in sales, while lowering the price might significantly increase sales.