If the demand curve for a good always has unitary price elasticity,what does this imply about consumer behavior?
A) Consumers do not react to a price change.
B) Consumers will spend a constant total amount on the good.
C) Consumers are irrational.
D) Consumers do not obey the Law of Demand.

Question

Quizplus · Accepted Answer

A unitary price elasticity of demand means that the percentage change in quantity demanded is equal to the percentage change in price. Therefore, if the price increases by a certain percentage, the quantity demanded will decrease by the same percentage, resulting in a constant total expenditure by consumers on the good. This implies that consumers have a fixed budget or income, and they adjust their consumption of the good to keep their spending within that limit.

If the Demand Curve for a Good Always Has Unitary