What does "unit elastic demand" imply?

Unit elastic demand refers to a specific relationship between price changes and the quantity of a good or service that consumers are willing to buy. When demand is unit elastic, it means that any percentage change in price results in an equal percentage change in quantity demanded in the opposite direction. For example, if the price of a product increases by 10%, the quantity demanded will decrease by exactly 10%. This concept reflects that consumers are responsive to price changes, and the total revenue remains constant when the price changes because the changes in quantity demanded offset the changes in price.

Understanding this term is essential in economics because it helps businesses make decisions about pricing strategies. When managing products with unit elastic demand, firms can analyze how changes in price will affect their sales revenue without assuming that any price increase will always lead to a loss in total revenue, or that any price decrease will always lead to a gain.

In contrast, other options present different elasticity concepts. Some suggest fixed demand regardless of price or a lack of responsiveness, which does not accurately characterize unit elastic demand.