Question

If your calculation for the absolute value of the elasticity of demand equals 1, what does this say about the price and quantity demand changes?

a) Price and quantity change proportionately
b) Price change is greater than quantity change
c) Quantity change is greater than price change
d) There is no relationship between price and quantity changes

Answer 1

When the absolute value of the elasticity of demand is 1, it means that price and quantity demanded change proportionately, known as unitary elasticity. The correct option is a.

Step-by-step explanation:

If your calculation for the absolute value of the elasticity of demand equals 1, this indicates that price and quantity demanded change proportionately. This is known as unitary elasticity. When the absolute value of the price elasticity of demand is 1, a 1% increase in price leads to exactly a 1% decrease in the quantity demanded.

Likewise, a 1% decrease in price leads to a 1% increase in the quantity demanded. This scenario falls under option (a), Price and quantity change proportionately.

It's important to note that elasticity and slope are related but distinct concepts. The elasticity of demand measures the responsiveness of quantity demanded to price changes, regardless of the slope of the demand curve. In other words, it's about how consumers react to price changes and not the angle of the curve itself. The correct option is a.