Question

Real life examples of unitary elasticity

Answer 1

Unit elasticity of demand occurs where a 1% increase in price will lead to a 1% decrease in the quantity purchased.

This means that the price at which there is unit elasticity is also the price at which total revenue will be maximised.

So we would expect to see unit elasticity in monopoly markets where there marginal cost of selling an additional unit of the product is zero. So prices of music downloads or of ebooks, for example.