Which type of demand is characterized by a substantial change in quantity demanded with a small price adjustment?

Price elastic demand refers to a situation where the quantity demanded of a good or service changes significantly in response to a small change in its price. This means that consumers are very sensitive to price changes; even a slight increase in price can lead to a notable decrease in the quantity demanded, or vice versa.

This characteristic is typically seen in non-essential goods or services where substitutes are available, making consumers more likely to alter their purchasing behavior based on price fluctuations. For example, if the price of a popular brand of shoes increases slightly, consumers may quickly switch to a cheaper alternative brand, demonstrating price elasticity. In contrast, goods that are considered necessities, such as basic food items or utilities, tend to show price inelastic demand, where changes in price do not significantly alter the quantity demanded.

This understanding of price elasticity is crucial for businesses in setting prices and for policymakers in assessing the impact of taxes and subsidies on consumer behavior.