Unit elastic demand means a change in price leads to no change in total revenue.

Unit elastic demand means a change in price leads to no change in total revenue.

• A. A shift of the supply curve leads to no change in price.
• B. The slope of the demand curve is -1.
• C. A change in price leads to no change in total revenue.
• D. A shift of the supply curve leads to an equal shift of the demand curve.

Answer: (C)

This question tests how total revenue responds when price changes, given unit elasticity of demand. When demand is unit elastic, the absolute value of the price elasticity of demand is 1. That means the percentage change in quantity demanded is exactly the opposite of the percentage change in price: %ΔQ = -%ΔP. Since total revenue is TR = P × Q, the percentage change in TR is the sum of the percentage changes in price and quantity: %ΔTR = %ΔP + %ΔQ. With unit elasticity, this becomes %ΔTR = %ΔP + (-%ΔP) = 0. So the total revenue doesn't change when price changes, at least for changes measured along that demand curve with constant unit elasticity. A quick example helps: if price rises by 10% and quantity falls by 10%, revenue is roughly unchanged (new TR ≈ 1.10P × 0.90Q = 0.99PQ, which is essentially the same for small changes). The key idea is the balanced offset between price and quantity under unit elastic demand. The other statements don’t describe this relationship. Shifts in the supply curve or specific slope values don’t define how revenue responds to a price move in the way elasticity does, and revenue staying the same is not about a mere equal shift of demand and supply.

This question tests how total revenue responds when price changes, given unit elasticity of demand. When demand is unit elastic, the absolute value of the price elasticity of demand is 1. That means the percentage change in quantity demanded is exactly the opposite of the percentage change in price: %ΔQ = -%ΔP.

Since total revenue is TR = P × Q, the percentage change in TR is the sum of the percentage changes in price and quantity: %ΔTR = %ΔP + %ΔQ. With unit elasticity, this becomes %ΔTR = %ΔP + (-%ΔP) = 0. So the total revenue doesn't change when price changes, at least for changes measured along that demand curve with constant unit elasticity.

A quick example helps: if price rises by 10% and quantity falls by 10%, revenue is roughly unchanged (new TR ≈ 1.10P × 0.90Q = 0.99PQ, which is essentially the same for small changes). The key idea is the balanced offset between price and quantity under unit elastic demand.

The other statements don’t describe this relationship. Shifts in the supply curve or specific slope values don’t define how revenue responds to a price move in the way elasticity does, and revenue staying the same is not about a mere equal shift of demand and supply.