If a good's price elasticity of demand is exactly 1, total revenue remains constant when price changes.

If a good's price elasticity of demand is exactly 1, total revenue remains constant when price changes.

• A. True
• B. False
• C. Only for certain goods.
• D. Depends on supply.

Answer: (A)

When demand is unit elastic, the percentage change in quantity demanded exactly offsets the percentage change in price. Since total revenue is price times quantity (R = P × Q), this offset means revenue stays the same when price changes. If the elasticity is exactly 1 in magnitude across the price range, the relationship Q = k/P holds, so R = P × (k/P) = k, a constant. A quick check using the elasticity formula also shows dR/dP = 0 when e = -1, confirming no revenue change for price movements. So the statement is true.

When demand is unit elastic, the percentage change in quantity demanded exactly offsets the percentage change in price. Since total revenue is price times quantity (R = P × Q), this offset means revenue stays the same when price changes. If the elasticity is exactly 1 in magnitude across the price range, the relationship Q = k/P holds, so R = P × (k/P) = k, a constant. A quick check using the elasticity formula also shows dR/dP = 0 when e = -1, confirming no revenue change for price movements. So the statement is true.