Question : The price elasticity of demand for a good is unit elastic if it is:
Option 1: Greater than 1.
Option 2: Less than 1.
Option 3: Equal to 1.
Option 4: Negative.
Correct Answer: Equal to 1.
Solution : The correct answer is (c) Equal to 1.
When the price elasticity of demand is equal to 1, it indicates that the percentage change in price leads to an equal percentage change in quantity demanded. In other words, the responsiveness of quantity demanded to changes in price is proportionate.
In this case, if the price of a good increases by a certain percentage, the quantity demanded will decrease by the same percentage. Similarly, if the price of a good decreases by a certain percentage, the quantity demanded will increase by the same percentage.
A price elasticity of demand equal to 1 reflects a situation where consumers' demand is neither highly responsive (elastic) nor unresponsive (inelastic) to changes in price. It suggests that changes in price have an equal impact on the percentage change in quantity demanded.
Therefore, if the price elasticity of demand for a good is equal to 1, it is considered unit elastic.
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