If demand is unit elastic, a 5% increase in price results in what change in total revenue?

If demand is unit elastic, a 5% increase in price results in what change in total revenue?

• A. A 5 percent increase in price results in a 5 percent increase in total revenue.
• B. The slope of the demand curve is -1.
• C. A 5 percent increase in price results in a 5 percent decrease in total revenue.
• D. A 5 percent increase in price does not change total revenue.

Answer: (D)

Unit elastic demand means the percentage change in quantity demanded exactly offsets the percentage change in price, so total revenue stays the same when price changes. If price rises by 5%, quantity demanded falls by about 5%, making TR = P × Q stay unchanged in the usual teaching framework. In calculus terms, with elasticity at -1, a small price change yields d(TR) = P dQ + Q dP = 0, so total revenue doesn’t change. (For a finite 5% change, you’d get TR' = 1.05P × 0.95Q = 0.9975 TR, very close to unchanged; the standard result used in many questions is that TR remains the same.)

Unit elastic demand means the percentage change in quantity demanded exactly offsets the percentage change in price, so total revenue stays the same when price changes. If price rises by 5%, quantity demanded falls by about 5%, making TR = P × Q stay unchanged in the usual teaching framework. In calculus terms, with elasticity at -1, a small price change yields d(TR) = P dQ + Q dP = 0, so total revenue doesn’t change. (For a finite 5% change, you’d get TR' = 1.05P × 0.95Q = 0.9975 TR, very close to unchanged; the standard result used in many questions is that TR remains the same.)