Explain the case of unitary elastic demand curve.

1. Introduction to Unitary Elastic Demand:

Unitary elastic demand refers to a situation in economics where the percentage change in quantity demanded is equal to the percentage change in price. This means that the responsiveness of quantity demanded to a change in price is exactly proportionate, resulting in a demand curve with an elasticity of -1.

2. Characteristics of Unitary Elastic Demand:

• When the price of a good or service changes, the total revenue remains constant.
• The demand curve is a straight line that passes through the origin with a slope of -1.
• Unitary elasticity is often considered the midpoint on the demand curve where elasticity transitions from elastic to inelastic or vice versa.

3. Explanation of Unitary Elastic Demand:

• Mathematical Representation: Mathematically, unitary elastic demand is expressed as:

  [ \text{Elasticity of Demand} = \frac{\%\ \text{Change in Quantity Demanded}}{\%\ \text{Change in Price}} = -1 ]

• Graphical Representation: On a graph, the unitary elastic demand curve is a straight line that passes through the origin at a 45-degree angle. This indicates that for every percentage increase in price, there is an equal percentage decrease in quantity demanded, resulting in constant total revenue.

4. Example of Unitary Elastic Demand:

Let's consider a hypothetical example of a good where the price is $10 per unit, and the quantity demanded is 100 units. If the price decreases by 10% to $9 per unit, the quantity demanded will increase by 10% to 110 units. The total revenue at both price levels remains the same at $1000 (Price x Quantity).

5. Significance of Unitary Elastic Demand:

• Unitary elastic demand is important for businesses to understand as it indicates a critical point where changes in price can have a balanced impact on revenue.
• It also highlights the responsiveness of consumers to price changes, showing that consumers are willing to adjust their purchases proportionately to changes in price.

6. Conclusion:

Unitary elastic demand is a concept in economics that represents a situation where the percentage change in quantity demanded is equal to the percentage change in price. It is characterized by a demand curve with an elasticity of -1, indicating a balanced responsiveness of quantity demanded to price changes. Understanding unitary elastic demand is essential for businesses to make pricing and production decisions.