When the price of cheddar cheese increases 15%, quantity demanded decreases 15%. The price elasticity of demand for cheddar cheese is ________ and total revenue from cheddar cheese sales will ________.
A) elastic; decrease
B) elastic; increase
C) inelastic; decrease
D) unit elastic; not change

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, both changes are 15%, making the elasticity equal to 1, which is defined as unit elastic. When demand is unit elastic, total revenue does not change with a price increase because the proportional decrease in quantity demanded exactly offsets the price increase.

When the Price of Cheddar Cheese Increases 15%, Quantity Demanded