Refer to the following figure: -At what prices are demand curves D₁, D₂, and D₃ unitary elastic? A) $5; $5; $5; respectively B) $17; $6; $5; respectively C) $6; $3; $6; respectively D) $1; $1; $1; respectively

Question

Quizplus · Accepted Answer

Unitary elasticity occurs when the percentage change in quantity demanded is equal to the percentage change in price. Looking at the graph, we can see that for D₁, the price is $6 and the quantity demanded is 6, giving a total revenue of $36. If we increase the price to $7, the quantity demanded will decrease to 5, giving a total revenue of $35, which is a 2.78% decrease. If we decrease the price to $5, the quantity demanded will increase to 7, giving a total revenue of $35, which is also a 2.78% decrease. Therefore, the demand curve D₁ is unitary elastic at a price of $6. Similarly, for D₂, the price is $3 and the quantity demanded is 12, giving a total revenue of $36. If we increase the price to $4, the quantity demanded will decrease to 8, giving a total revenue of $32, which is a 10.3% decrease. If we decrease the price to $2, the quantity demanded will increase to 16, giving a total revenue of $32, which is also a 10.3% decrease. Therefore, the demand curve D₂ is unitary elastic at a price of $3. Finally, for D₃, the price is $6 and the quantity demanded is 4, giving a total revenue of $24. If we increase the price to $7, the quantity demanded will decrease to 3, giving a total revenue of $21, which is a 12.5% decrease. If we decrease the price to $5, the quantity demanded will increase to 5, giving a total revenue of $25, which is a 4.2% increase. Therefore, the demand curve D₃ is not unitary elastic at any price.

Refer to the Following Figure