If the price elasticity of demand for a product is 1 in absolute value, and the price elasticity of supply of the same product is 1, what is the predicted percent change in price from a 1 percent increase in demand?
A) a rise in price of 0.5 percent
B) a rise in price of 2 percent
C) a fall in price of 0.5 percent
D) a fall in price of 2 percent

Question

Quizplus · Accepted Answer

When both the price elasticity of demand and supply are equal to 1, the market is unit elastic. A 1% increase in demand will lead to a 0.5% increase in price, as the change is equally distributed between demand and supply.

If the Price Elasticity of Demand for a Product Is