When demand has unit elasticity, revenue will decrease if price is lowered/raised/stays the same/changes in either direction

Understanding the Concept of Unit Elasticity

1. Definition of Unit Elasticity: Unit elasticity occurs when the percentage change in quantity demanded is equal to the percentage change in price. This means that the demand for a product reacts proportionately to price changes.

2. Impact on Revenue: Revenue (R) is calculated as the product of price (P) and quantity (Q) sold, expressed as $R = P \times Q$.

Analyzing Revenue Changes

3. Price Decrease: If the price of a product is lowered in a unit elastic scenario, the quantity demanded will increase proportionately, keeping revenue constant.

4. Price Increase: Conversely, if the price is raised, the quantity demanded will decrease proportionately, which also keeps revenue constant.

5. Price Stability: If the price remains the same, there will be no change in revenue since quantities and prices are unchanged.

Conclusion

Considering these points, under unit elasticity, changes to price—whether raised or lowered—do not affect total revenue.

Final Answer

Revenue will remain unchanged if the price is lowered, raised, or stays the same when demand has unit elasticity.