When a price change causes an equal percentage change in quantity demanded, leaving total revenue unchanged, the demand is?

When a price change causes an equal percentage change in quantity demanded, leaving total revenue unchanged, the demand is?

• A. Perfectly Elastic Demand
• B. Perfectly Inelastic Demand
• C. Unit Elasticity of Demand
• D. Elastic Demand

Answer: (C)

Understanding how total revenue responds to price changes depends on the elasticity of demand. If the price elasticity of demand is unitary, a price change is met with an equal percentage change in quantity demanded in the opposite direction, so total revenue stays the same for small price movements. For example, a 10% price increase leads to about a 10% drop in quantity demanded, keeping P×Q roughly constant. This is called unit elasticity of demand. Other scenarios differ: with perfectly elastic demand, even a tiny price rise can push quantity demanded toward zero, dramatically changing revenue; with perfectly inelastic demand, quantity doesn’t change so revenue moves directly with price; with elastic demand, revenue changes in the opposite direction to the price change because quantity falls more than the price increases.

Understanding how total revenue responds to price changes depends on the elasticity of demand. If the price elasticity of demand is unitary, a price change is met with an equal percentage change in quantity demanded in the opposite direction, so total revenue stays the same for small price movements. For example, a 10% price increase leads to about a 10% drop in quantity demanded, keeping P×Q roughly constant. This is called unit elasticity of demand. Other scenarios differ: with perfectly elastic demand, even a tiny price rise can push quantity demanded toward zero, dramatically changing revenue; with perfectly inelastic demand, quantity doesn’t change so revenue moves directly with price; with elastic demand, revenue changes in the opposite direction to the price change because quantity falls more than the price increases.