Final answer:
Price Elasticity of Demand greater than one signifies elastic demand, meaning quantity demanded is highly responsive to price changes. This concept is critical for businesses in setting pricing strategies to optimize revenues.
Step-by-step explanation:
When the Price Elasticity of Demand is greater than one in absolute value, it means there is an elastic demand. This indicates a high responsiveness of quantity demanded to changes in price. Essentially, consumers are likely to buy much more or much less of the product in response to price changes. For example, if the Price Elasticity of Demand is estimated at 1.5, a 1% decrease in price would lead to a 1.5% increase in quantity demanded. On the contrary, if prices increase, the quantity demanded would drop significantly.
Economists and businesses can use this information to predict how a change in price could affect sales and revenue. Product pricing strategies can therefore be modified according to the elasticity to maximize profits and market share.