Unitary Elasticity

Definition§

Unitary Elasticity is a concept in economics that represents a situation where the price elasticity of demand is exactly one. This means that the percentage change in the quantity demanded is exactly equal to the percentage change in price. As a result, the total revenue (price multiplied by quantity) remains unchanged when the price changes.

Examples§

1. Bottled Water: Suppose the price of a bottle of water rises by 10%, and the quantity demanded drops by 10%. The total expenditure on bottled water remains the same, demonstrating unitary elasticity.
2. Cinema Tickets: If the price of cinema tickets decreases by 15%, and the quantity demanded increases by 15%, the total revenue from ticket sales stays constant, indicating unitary elasticity.

Frequently Asked Questions (FAQs)§

Q1: What is the formula for calculating unitary elasticity? A1: Unitary elasticity (E) can be calculated using the formula: $$E = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$$ When E = 1, the demand is considered unitary elastic.

Q2: How does unitary elasticity affect a business’s total revenue? A2: In the case of unitary elasticity, a business’s total revenue will remain constant regardless of changes in price. Any increase in the price will be offset by a proportional decrease in quantity demanded, and vice versa.

Q3: Can unitary elasticity apply to supply as well as demand? A3: Yes, unitary elasticity can apply to both the supply and demand curves. However, it is most commonly referred to in the context of demand.

Q4: What factors determine whether a good will have unitary elasticity? A4: Factors include the necessity of the good, the availability of substitutes, and the proportion of income spent on the good.

Related Terms§

• Price Elasticity of Demand: A measure of the responsiveness of the quantity demanded of a good to a change in its price.
• Elastic Demand: When the price elasticity of demand is greater than one, indicating a high sensitivity to price changes.
• Inelastic Demand: When the price elasticity of demand is less than one, indicating low sensitivity to price changes.
• Total Revenue: The total amount of money a firm receives from sales of a good or service, calculated as the product of price and quantity sold.

Online References to Online Resources§

• Investopedia: Unitary Elasticity
• Khan Academy: Price Elasticity of Demand
• Wikipedia: Price Elasticity of Demand

Suggested Books for Further Studies§

• “Principles of Economics” by N. Gregory Mankiw
• “Microeconomics” by Robert Pindyck and Daniel L. Rubinfeld
• “Economics for Beginners” by Andrew McAfee

Fundamentals of Unitary Elasticity: Economics Basics Quiz§

Thank you for exploring the concept of unitary elasticity in our economic glossary and tackling the illustrative quiz questions. Continue advancing your economic understanding!