Question

For a unitary elastic demand curve, the price elasticity of demand is everywhere ___________ and total expenditures on the good ________________ as price increases.

Select one:

a. - 1, decreases

b. - 1, remain constant

c. - 1, increases

d. undefined, increases

Answer 1

Undefined; increases

Under unitary elastic demand, the price elasticity will be undefined and the total expenditure will increase with the increase in price level. On the other hand, if the price elasticity is inelastic the value becomes one. Unitary elasticity shows the same change in percentage of price and quantity. The rate of change of price level shows the same change in quantity demanded. For example, the price of mobile increased by 10 percent; then the quantity demanded will be declined by 10 percent. The price elasticity becomes negative one; only when the elasticity is perfect. This perfectly elastic demand shows that the small change in price will leads to an infinite change in quantity demanded.