What is unitary elasticity?
Quick Answer
In the field of economics, the term "unitary elasticity" refers to a situation in which a shift in one factor leads to a proportional or equal shift in another factor, leaving original outcomes in place. This is particularly important with regard to the setting of prices; when unitary elasticity is at work in a market, it is impossible to change revenues by changing the unit price.
Continue ReadingFull Answer
Consider a situation in which milk costs $2.50 per gallon. A grocer notices that he is not selling as much milk as he would like, so he puts the milk on sale, dropping the price to $1.25 a gallon. With unitary elasticity, the number of sales would double because the price was cut in half. So if the grocer would sell 100 gallon jugs of milk at $2.50, that would lead to revenues of $250. Cutting the price to $1.25 would then yield sales of 200 gallons, still leading to revenues of $250. If a milk shortage hits and the grocer hiked the price up to $5 per gallon, he would only sell 50 gallons because unitary elasticity means that the grocer would still only bring in $250. In real-world situations, unitary elasticity almost never takes place.
Learn more about EconomicsRelated Questions
-
Q:
Why is economics considered a science?
A: The field of economics uses scientific methodology to unveil truths about its nature. Economists often perform experiments and use scientific tools for cra... Full Answer >Filed Under: -
Q:
What is supply and demand?
A: The laws of supply and demand are foundation concepts in the field of economics. The law of demand indicates that under typical circumstances, the greater ... Full Answer >Filed Under: -
Q:
What is absolute advantage?
A: "Absolute advantage" is an economics term that refers to the ability of a person, firm or household to����produce a good or service with less input than an... Full Answer >Filed Under: -
Q:
What is elasticity of demand?
A: Elasticity of demand is an economics term meaning the relative change in quantity demanded for a good based on a particular price change. High price elasti... Full Answer >Filed Under:
