What type of demand elasticity indicates a greater than proportional response to price change?

The correct choice is elastic demand, which is characterized by a greater than proportional response to changes in price. In this context, when the price of a product decreases, the quantity demanded increases significantly, and conversely, if the price increases, the quantity demanded drops sharply. This indicates that consumers are responsive to price changes, reflecting a strong sensitivity in their purchasing behavior.

Elastic demand typically exists for products that are not necessities, have many substitutes, or are part of a discretionary spending category. For example, luxury items or non-essential goods often show elastic demand, as consumers can forgo purchasing them or switch to alternatives when prices rise.

In contrast, inelastic demand refers to situations where the quantity demanded is relatively unresponsive to price changes, meaning consumers continue to purchase similar quantities regardless of price fluctuations. Unitary elastic demand indicates that the percentage change in quantity demanded is proportional to the percentage change in price. Perfectly elastic demand suggests that consumers will only buy at a specific price and none at all if prices rise, which is an extreme and rarely encountered situation in real markets. Thus, elastic demand is clearly the characteristic that describes a greater than proportional response to price changes.