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Unit Elasticity Formula:
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Unit elasticity occurs when the percentage change in quantity demanded equals the percentage change in price. This means that price elasticity of demand (PED) equals exactly 1, indicating proportional responsiveness of consumers to price changes.
The formula for price elasticity of demand is:
Where:
Explanation: When E = 1, the demand is unit elastic, meaning total revenue remains unchanged when price changes because the percentage change in quantity exactly offsets the percentage change in price.
Details: Understanding unit elasticity helps businesses optimize pricing strategies. When demand is unit elastic, changing prices won't affect total revenue, making it a critical point for revenue maximization decisions.
Tips: Enter the percentage change in price and percentage change in quantity demanded. The calculator will determine the price elasticity and classify it as elastic (E > 1), unit elastic (E = 1), or inelastic (E < 1).
Q1: What does unit elasticity mean in practice?
A: It means that if a business raises prices by 10%, quantity demanded will decrease by exactly 10%, leaving total revenue unchanged.
Q2: How is unit elasticity different from other elasticities?
A: Elastic demand (E > 1) means quantity is highly responsive to price changes; inelastic demand (E < 1) means quantity is less responsive; unit elastic is exactly proportional.
Q3: What types of products typically have unit elasticity?
A: Products with close substitutes and moderate necessity often exhibit unit elasticity, where consumers are responsive but not extremely sensitive to price changes.
Q4: Can elasticity change over time?
A: Yes, elasticity can change as consumer preferences evolve, new substitutes enter the market, or income levels change.
Q5: Why is the absolute value used for elasticity?
A: Price elasticity is typically expressed as a positive number for convenience, though the relationship between price and quantity is inherently inverse.