Microeconomics: Unitary elasticity properties

In summary, the demand for good A is unit elastic, meaning that a 5 percent increase in price will have no impact on the consumer's spending on the good. This is because unitary elasticity results in a proportional change in both the price and quantity demanded, keeping total revenue relatively the same.
  • #1
maiad
102
0

Homework Statement


The demand for good A is unit elastic. This means that a 5 percent increase in price will ______
A) result in an infinite increase in the quantity of A demanded.
B) result in a 1 percent decrease in the quantity of A demanded.
C) result in 5 percent increase in quantity demanded.
D) have no impact on the consumer's spending on the good.
E) increase consumer's spending on the good by 5 percent.


Homework Equations





The Attempt at a Solution


I'm sure A to C is false which only leaves the answer to be D or E.
I know unitary elasticity has a proportional change in terms of % change in price and % change in quantity demanded. Assuming consumerspending= P x Q, TR will remain relatively the same. So would it be D?
 
Last edited:
Physics news on Phys.org
  • #2
I know nothing about economics (OK I have just heard of more and less elastic demand) but find it obvious how you would define a thing like this, would be surprised if I was wrong. Maybe if you looked the definition in your textbook? - I don't suppose they are after guesses here.
 

Related to Microeconomics: Unitary elasticity properties

1. What is unitary elasticity in microeconomics?

Unitary elasticity in microeconomics refers to a specific type of price elasticity of demand. It occurs when the percentage change in quantity demanded is equal to the percentage change in price. This means that the demand for a good or service is perfectly responsive to changes in its price, resulting in a demand curve that is a straight line with a slope of -1.

2. How is unitary elasticity different from other types of elasticities?

Unitary elasticity is unique in that it represents a midpoint between two extremes of elasticity. On one end, we have perfectly elastic demand, where the percentage change in quantity demanded is infinite in response to any change in price. On the other end, we have perfectly inelastic demand, where the percentage change in quantity demanded is zero in response to any change in price. Unitary elasticity falls in between these two extremes, with a percentage change in quantity demanded of exactly 1 for every percentage change in price.

3. What are the properties of unitary elasticity?

Unitary elasticity has several key properties. First, the demand curve is a straight line with a slope of -1, which means that the price and quantity demanded are inversely related. Second, the total revenue for the seller remains constant as the price changes, as the percentage change in quantity demanded offsets the percentage change in price. Third, the price elasticity of demand is equal to 1, indicating a midpoint between perfectly elastic and perfectly inelastic demand.

4. How does unitary elasticity impact pricing decisions for businesses?

Unitary elasticity is a desirable situation for businesses, as it allows them to maximize their total revenue. This means that they can adjust their prices without negatively impacting their overall revenue. However, it also means that businesses must be careful not to raise prices too much, as a small increase in price could result in a large decrease in quantity demanded, leading to a decrease in revenue.

5. Can unitary elasticity occur in the real world?

While it is possible for unitary elasticity to exist in theory, it is rare to see it in the real world. This is because most products and services do not have a perfectly linear demand curve, and there are often other factors at play, such as substitutes or complementary goods. However, some products, such as essential items like food or gasoline, may exhibit unitary elasticity in certain situations.

Similar threads

  • Biology and Chemistry Homework Help
Replies
1
Views
3K
  • Biology and Chemistry Homework Help
Replies
3
Views
3K
Replies
4
Views
4K
  • General Math
Replies
1
Views
4K
  • Biology and Chemistry Homework Help
Replies
1
Views
2K
Replies
1
Views
4K
  • General Discussion
Replies
6
Views
14K
  • Introductory Physics Homework Help
Replies
3
Views
220
  • Introductory Physics Homework Help
Replies
15
Views
5K
Replies
22
Views
2K
Back
Top