in my opinion, how you answer this question depends on the situation.
theres 2 ways i would handle it, and i've been through both
if someone in petsmart or somewhere else asks "is that a teacup?" when im holding Caden. he's 11 pounds, so they obviously just want to start a conversation
i just say VERYYY politely "this big boy? (and giggle) no, teacups dont really exist. breeders just say that to get more money." and they say "ohh" . so no one's feelings are really hurt, but the other person learned something new
this next situation definitely was nott my favorite...
in petsmart one day, i was holding Caden, and this other lady was holding a yorkie, too. she walked up to me in the toy aisle (mind you, her yorkie was about .000023 pounds) she said "wow!!! your yorkie is absolutely HUGE!! HES NOT NORMAL!! how much does he weigh?? 20 pounds???! you see, i have a teacup, so she will stay small. i got her for an expensive $10,748 (idr the price, but it was a large ammount)" she said it SOO stuck-up-ish (she was like 30 and thought she was initimidating me because im 13) so i said "thats a lot of money! too bad you didn't get her for the deluxe deal at $11,000 dollars, cause that might have bought you the knowledge that you were ripped off!" sure enough, she walked away with the knowledge that teacups dont exist =]
now i am NOT usually this mean . but when people try to be better than me or try to put me down, i do something about it