If the price of a luxury car increases by 10% and, as a result, the quantity demanded decreases by 20%, what type of demand does this indicate?

This situation shows that the demand for the luxury car is elastic. Elastic demand means that when the price changes, the quantity demanded changes by an even larger percentage. In this case, a 10% increase in price led to a 20% decrease in the quantity demanded, which is a significant drop. For example, if a luxury car originally costs $100,000, a 10% increase raises the price to $110,000, and if fewer people are willing to buy it at this higher price, it indicates they are sensitive to the price change. Therefore, the demand for luxury cars is elastic because consumers react strongly to price changes.