Question : Assertion: When a good has a price elasticity of demand equal to 1, it is considered unit elastic.

Reason: Unit elastic demand implies that the percentage change in quantity demanded is equal to the percentage change in price.

Option 1: Both the assertion and reason are correct and related.

Option 2: Both the assertion and reason are correct but not related.

Option 3: The assertion is correct, but the reason is incorrect.

Option 4: The assertion is incorrect, but the reason is correct.

Correct Answer: Both the assertion and reason are correct and related.

Solution : The correct answer is (A) Both the assertion and reason are correct and related.

The assertion states that when a good has a price elasticity of demand equal to 1, it is considered unit elastic. This is correct. Unit elastic demand refers to a situation where the percentage change in quantity demanded is equal to the percentage change in price. When the price elasticity of demand is exactly 1, it indicates that the demand for the good is neither relatively elastic (greater than 1) nor relatively inelastic (less than 1), but rather perfectly responsive to price changes.

The reason states that unit elastic demand implies that the percentage change in quantity demanded is equal to the percentage change in price. This is also correct and supports the assertion. Unit elastic demand means that the responsiveness of quantity demanded to changes in price is exactly proportionate. A one percent change in price will result in a one percent change in quantity demanded.

Therefore, both the assertion and reason are correct and related. A price elasticity of demand equal to 1 indicates unit elastic demand, where the percentage change in quantity demanded is equal to the percentage change in price.