Unitary elastic demand

Indian Economy glossary

Also called: Unit elastic demand, Unitary elastic demand curve · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"

Meaning

Demand is unitary elastic (also called unit elastic) when the percentage change in quantity demanded equals the percentage change in price. In other words, |eD| = 1. The price change and the quantity change cancel out exactly, so total spending (P × Q) does not change. A demand curve that is unitary elastic at every point has the shape of a rectangular hyperbola (pq = constant).

Example

The price rises by 10% and the quantity bought falls by 10%, so spending stays about the same. On the straight-line demand D(p) = 10 − 3p, the price p = 5/3 gives q = 5 and eD = −1. This is the midpoint of the line.

Don't confuse with

  • Perfectly elastic demand: this has infinite elasticity, not an elasticity of 1. "Unit" does not mean "fully" elastic.
  • Straight-line demand curve: elasticity is 1 only at its midpoint, not all along the line.

Related concepts

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