If the demand for a good is unitary elastic, a 25 percent increase in price will result in: a

Economics Jan 19, 2021

If the demand for a good is unitary elastic, a 25 percent increase in price will result in:

a. a 25 percent change in total revenue.

b. no change in the quantity demanded.

c. a 25 percent decrease in the quantity demanded.

d. None of the above.

Expert Solution

Answer: C

Price elasticity of demand measures how much quantity demanded changes in percent terms for a 1% change in price. In this case, price increases by 25% and price elasticity of demand is 1. This means that quantity demanded should decrease by 25%. This is because price elasticity of demand is the percent change in quantity demanded over the percent change in price.

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