Asked by Feryal Rushdan on Jun 16, 2024
Verified
If the price elasticity of demand for a product is unity, a decrease in price will
A) have no effect upon the amount purchased.
B) increase the quantity demanded and increase total revenue.
C) increase the quantity demanded but decrease total revenue.
D) increase the quantity demanded, but total revenue will be unchanged.
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in its price, influencing consumer behavior and market dynamics.
Unity
The state of being united or joined as a whole, often used to denote a sense of togetherness or harmony.
Total Revenue
The total amount of money received by a company for goods sold or services provided during a certain time period.
- Understand the importance of unit elasticity in market demand.
Verified Answer
ET
Eeyore TiggerJun 17, 2024
Final Answer :
D
Explanation :
When the price elasticity of demand is equal to unity (1), it means that the percentage change in quantity demanded is equal to the percentage change in price. In this case, a decrease in price will lead to an increase in the quantity demanded, but the total revenue (price x quantity) will remain unchanged because the proportional increase in quantity demanded offsets the proportional decrease in price.
Learning Objectives
- Understand the importance of unit elasticity in market demand.