ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In this case, the price increases by 25%, and the price elasticity of demand is 1. This means that the quantity demanded should decrease by 25%. This is because the price elasticity of demand is the percent change in quantity demanded over the percent change in price.

Detailed explanation-2: -Answer and Explanation: If demand is unit elastic, a 25 percent increase in price will result in 25 percent decrease in quantity demanded.

Detailed explanation-3: -If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold-thus raising total revenue.

Detailed explanation-4: -If the percent change in a good’s price is offset by an equal percent change in the quantity demanded, economists would label the demand for that good as unit elastic. So if a price of a good increases by 20 percent and the quantity demanded decreases by 20 percent, the demand for that good is considered unit elastic.

Detailed explanation-5: -A product with unitary elasticity (E = 1) sees an identical percent decrease in demand to percent increase of price, and thus no net change in revenue with an increase or decrease in price p. This is the optimal price at which to sell a product in order to maximize revenue.