Question

With the help of a diagram, explain the condition when Ep = 1.

Answer 1

Ep = 1: Unitary Elastic Demand

If with a fall or rise in the price of the commodity, total expenditure remains the same, then demand for the commodity will be called unit elastic.

1. The first part of the table shows that total expenditure varies inversely with the price change, so the demand is elastic (i.e. Ed > 1 ).
2. The second part of the table depicts unit elastic demand because total expenditure on the commodity remains the same as before and after change in price.
3. The third part of the table shows total expenditure on the commodity varies directly with the price change.

Diagram: The demand curve is a rectangular hyperbola, showing that changes in price lead to proportionate changes in quantity demanded, keeping total revenue constant.