When Elasticity of Demand is greater than one, the demand is

Step 1: Analyze the question The question asks what we call demand when the price elasticity of demand (PED) is greater than one (PED > 1).

Step 2: The concept Price elasticity of demand measures how responsive quantity demanded is to a change in price:

PED = % change in quantity demanded ÷ % change in price

The classifications are:

| PED value | Type of demand | |---|---| | PED = 0 | Perfectly inelastic (zero elastic) | | 0 < PED < 1 | Inelastic (relatively inelastic) | | PED = 1 | Unitary elastic | | 1 < PED < ∞ | Elastic (relatively elastic) | | PED = ∞ | Perfectly elastic |

Step 3: Apply it Here, PED > 1. This means quantity demanded changes by a larger percentage than the price changes. For example, if price rises by 10% and quantity demanded falls by 25%, then PED = 25 ÷ 10 = 2.5, which is greater than 1. Consumers are very responsive to price, so demand is elastic.

Step 4: Check the options

• A. Perfectly elastic: this applies only when PED is infinity, so it is not correct.
• B. Unitary elastic: this applies only when PED = 1 exactly, so it is not correct.
• C. Zero elastic: this applies when PED = 0, so it is not correct.
• D. Inelastic: this applies when PED < 1, so it is not correct.
• E. Elastic: this applies when PED > 1, so it is correct.

Answer: E. Elastic

Exam tip: Remember it by the number one. Greater than 1 means elastic (stretchy, very responsive). Less than 1 means inelastic (stubborn, not very responsive). Exactly 1 means unitary. Watch for the extreme cases: 0 is perfectly inelastic and infinity is perfectly elastic.