What does it mean if the price elasticity of demand is greater than 1?

When the price elasticity of demand is greater than 1, it signifies that demand is elastic. This means that the percentage change in the quantity demanded is greater than the percentage change in price. In practical terms, it indicates that consumers are relatively responsive to changes in price; a small decrease in price leads to a proportionally larger increase in quantity demanded, and conversely, a small increase in price results in a proportionally larger decrease in quantity demanded.

This concept is critical in understanding consumer behavior and market dynamics. For example, if a company's product has elastic demand, it can increase sales significantly by lowering prices, while a price increase might lead to a sharp drop in sales. This responsiveness is essential for businesses when setting pricing strategies and for economists when assessing market conditions.