When we think of SUVs, the first thing that usually springs to mind is size and space. Yet in recent times the SUV market – while continuing to grow in terms of sales volumes – is shrinking.

Eager to extend the extroardinary buyer appeal of the SUV phenomenon, vehicle makers from all over the world are rolling out smaller, smarter and more affordable versions of these family favourites.

Audi’s Q3 is one of the more recent arrivals, but one that’s gaining more than its share of attention.

First launched in 2012, the Q3 has spent much of the time since as the best seller in the entire Audi range – a status helped by it getting more affordable by the year.

Last year Audi rolled out a diesel base model Q3 that dipped below the $50,000 barrier. Now they’ve unveiled a frugal petrol variant that further drops that entry price to a very mainstream $42,300.

Yet this new Q3 1.4 TFSI feels anything but a bargain-basement machine. It does make one major compromise – dropping Audi’s famous Quattro all-wheel-drive system in favour of powering the little Q3 via the front wheels only.

Still, for a car that’s likely to spend most of its life in the city, that’s not such a bad thing. What surprised us most about the Q3 is just how easy – and how much fun – it is to drive. With a tiny 1.4-litre turbocharged engine, even a vehicle of relatively small dimensions might tend to feel a bit compromised.

Not the Q3. It leaps off the line, accelerates hard as it rips through the ratios of its dual-clutch S-Tronic transmission and handles with a balance and verve that totally belies its high-riding stance.

That shouldn’t surprise, I suppose – it shares the same running gear as the A3 sedan, a car that greatly impressed us when the vehicle was launched earlier this year.

Even after a week’s driving, mostly in built-up city traffic, our Q3 fuel gauge was less than half empty with a range of more than 400km still showing on the trip computer.

It calculated our average consumption at 7.1L/100km, which borders on astonishing for this type of driving in this type of car.

Its official combined average thirst is a miserly 6.2L/100km. In heavy, stop-start traffic, Audi’s stop-start system, appropriately enough, helps save fuel by turning off the engine while waiting for the traffic to move on or the lights to turn green.

Despite its trimmed-down price, the Q3 still has a decent level of standard equipment, incuding 17-inch alloys, rear parking sensors, leather trim, auto headlights and wipers, dual-zone climate-control, cruise control and Bluetooth connectivity with audio streaming.

Audi also offers a series of option packs, including the $3790 Technik package on our test vehicle, which added satellite navigation, front and rear parking sensors with a reversing camera and colour driver information display.

Other kits include an assist package with blind-spot, lane departure and high-beam assist for $1250, as well as the popular S-Line sport packages, featuring bigger wheels, LED running lights, paddle shifters and sports seats for an additional spend of about $6000.

The Q3 probably falls short of being a true family machine, although those whose children are yet to reach their teenage years would find it amply spacious and practical for most occasions.

It’s just as likely, though, that the Q3 will serve as the second car for well-to-do families – and it’s in that context that it will excel.

Its smart performance and delightfully nimble handling – as well as the excellent all-round visibility delivered by its raised ride height and glassy cockpit – make it one of the better city cars we’ve driven.

It feels big from the inside but remains small on the outside – so you don’t feel intimidated in traffice (quite the opposite) yet it’s a breeze to park.

Being an Audi, of course, things such as quality of dials and gauges, the classy click of switches and buttons and the peerless finish of the interior surfaces are a given.

It has a grown-up feel about the way it rides and handles, too.

It’s acceptably quiet for a car with firmish suspension and so much glass, it feels very solidly planted on the road yet soaks up rough surfaces and road imperfections with minimal feedback to the driver.

The six-speed S-Tronic transmission – a version of the double-clutch system perfected by Audi and its cousin VW in recent years – is a beauty.

Downshifts are handled in a seamless manner and rarely, if ever, seems to get stuck in the wrong gear – a particularly important feature in a machine with a smallish turbocharged engine such as this one.

Despite its small capacity the 1.4TFSI’s strengths, surprisingly, lie in its torquey low-down performance, which feels much more substantial than its 250Nm rating.

There’s a spirited 110kW on tap, too – once again a remarkable figure for such a small powerplant.

The Q3’s compact size really only becomes evident when you go to put bulky items into the rear hatch.

Its limited width meant that one of the rear seats had to be folded flat, although that task is easily achieved.

And, to be honest, this is not the kind of machine that is likely to be primarily used to lug a group of golfers heading off for their morning round. More likely a husband and wife heading off to the Sunday markets. In that context, it’s a perfect fit.

AUDI Q3 1.4

TFSI DETAILS: Five-door, five-seat compact SUV with four-cylinder, turbo-charged petrol engine and six-speed automatic transmission.

TECH STUFF: 1.4 litre, four-cylinder turbo-charged petrol engine produces 110kW@5000-6000rpm; 250Nm@1750-3000rpm; six-speed dual-clutch automatic transmission with manual shift function; front-wheel-drive.

FEATURES: Five-star safety rating, leather trim; electric windows and mirrors; dual-zone climate control airconditioning; multi-function steering wheel; Bluetooth connectivity with audio streaming; dusk-sensing headlights, rain-sensing wipers; cruise control; rear parking sensors; fuel-saving stop-start system.

THIRST: 6.2L/100km (official combined average).

VERDICT: Small but perfectly formed.

BOTTOM LINE: From $42,300 (plus onroad costs); as tested $46,090 (with Technik package including front/rear park assist, reversing camera; satellite navigation, colour driver information display.