What characterizes elastic demand in pricing strategies?

Elastic demand is characterized by a situation where the quantity demanded of a product changes significantly in response to price changes. This means that consumers are highly responsive to price fluctuations, which is a vital concept in pricing strategies.

When a relatively small decrease in price results in a substantial increase in quantity demanded, it emphasizes the sensitivity of consumers to changes in price. For businesses, this understanding allows them to implement pricing strategies that can significantly boost sales volume by lowering prices. Companies can attract more customers and increase overall revenue by capitalizing on this elasticity.

In contrast, the other options describe situations that do not exhibit elastic demand. An example from option B signifies inelastic demand, where a large price increase leads to a small decrease in quantity demanded, meaning consumers are less sensitive to price increases. Option C refers to unitary elastic demand where changes in price lead to proportional changes in revenue, indicating a balance rather than significant responsiveness. Lastly, option D illustrates inelastic behavior where small price changes lead to significant drops in quantity demanded, showing that consumers do not significantly increase demand with price reductions.

Understanding elastic demand is crucial for businesses to effectively set prices to maximize revenue while considering consumer behavior.