Final answer:
Price elasticity of demand measures how quantity demanded responds to price changes. An elasticity of 1, or unit elasticity, means that the percentage change in price results in an equal percentage change in quantity demanded, leaving total revenue unchanged.
Step-by-step explanation:
The subject of your question involves the concept of price elasticity of demand, which is a key concept in economics, specifically in the study of how the quantity demanded of a good responds to a change in its price. When the elasticity of a good is 1, this is known as unit elastic demand. In this case, a percentage change in price leads to an equal percentage change in quantity demanded. For instance, if a product's price is decreased by 5%, the quantity demanded would increase by 5%. This situation implies that the total revenue (which is the product of price and quantity sold) remains unchanged because the proportional increase in quantity demanded offsets the proportional decrease in price.
In practical terms, if a band were considering ticket prices and knew that the demand for their concert was unit elastic, they would understand that changing the ticket price, either up or down, would not affect their total revenue. The same principle applies to other products and services, such as a pharmaceutical company considering the price of a drug. If demand for the drug is unit elastic, the company should maintain its current price level to maximize total revenue.