Final answer:
Demand for the company's product is elastic, as the change in quantity demanded is greater than the change in price. This highlights the sensitivity of consumers to price changes for the product.
Step-by-step explanation:
Based on the information that a 10 percent increase in product price leads to a 12 percent decrease in the quantity demanded, demand for the company's product is elastic. Elasticity refers to the responsiveness of quantity demanded to a change in price. In this scenario, the quantity demanded is changing at a higher percentage than the price change, indicating elasticity. When the demand is elastic, consumers are quite sensitive to price changes, as shown by a larger change in quantity demanded compared to the change in price.
Price elasticity of demand is calculated by taking the percentage change in quantity demanded and dividing it by the percentage change in price. Demand elasticity is typically negative due to the inverse relationship between price and quantity demanded, but we interpret the number without regard to sign, meaning that we understand it as a positive value in this context. The company should take into account that demand for its product will likely diminish significantly if the price of the product increases, potentially affecting their sales volume and overall revenue.