Unitary Elastic Demand

What is Unitary Elastic Demand?

Unitary elastic demand is a type of demand which changes in the same proportion to its price; this means that the percentage change in demand is exactly equal to the percentage change in price. In the unitary demand, the product elasticity is negative as the product price decrease does not help to generate more revenue. It sticks at the same level as before, only the quantity of goods sold is increasing.

Unitary Elastic Demand

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Unitary Elastic Demand Formula

Expenditure = Price * Quantity
In the unitary elastic demand, expenditure is fixed initially.
Price Increase Quantity Derived = Expenditure / Price

Example of Unitary Elastic Demand

Let’s discuss an example of unitary elastic demand.

Unitary Elastic Demand Example 1.0

As it is visible in the example shown above that the consumer expenditure on the product is not impacted by the market pricing. They adjust their consumption as per the prices prevailing in the market.

Goods which are Impacted in Unitary Elasticity

The consumption pattern of the retail consumer is not fixed due to their fixed incomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.read more. So as the prices hit the market they generally reduce the quantity of using those goods. But the goods of basic necessity cannot be curtailed and even goods which are luxurious are not impacted due to prices even they react in the opposite manner

So the items covered here are those items which are of general nature whose consumption can be avoided even like:-

  1. Mobile phones
  2. Home appliances

Producers of these items have seen the trend in their product revenue due to the pricing factor. Producers put the product into the sale to boost their revenue by marginal decreasing the selling price.

Advantages of Unitary Elastic Demand

The following are the advantages of unitary elastic demand.

  • The manufacturer has a clear vision regarding their turnover – Does not impact through price target.
  • Any goods quantity that is produced can be sold off by decreasing the selling price.
  • The consumer budget did not reflect the change prices but the goods bought increase/decrease due to this activity.
  • Consumer expenditure pattern remains the same – Don’t disturb due to price setting.
  • Demand generated by the market can be adjusted by using the price control mechanism.

Disadvantages of Unitary Elastic Demand

The following are the disadvantages of unitary elastic demand.

  • Revenue is fixed for the products. a producer needs to adopt the differentiation strategy to boost up the margin.
  • Consumer consumption patterns misbalanced due to fixed expenditure on the products.
  • Consumer reaction is very fast against the price changes.
  • It impacts drastically the demand for goods.
  • The organization with low margins are finding it difficult to sustain because of thin margins get eliminated as they go for product expansion.

Important Points About Unitary Elastic Demand Curve

Unitary Elastic Demand Curve

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Aggregate demand by consumers is settled by the way of pricing policy determined by the company. Moreover, market capture share remains the same but no. of customers might get decreased.

Way to Check for Unitary Elastic Demand

  • If the Demand curve is in a horizontal line – Pure elastic demand.
  • If the demand curve is Vertical shaped – Pure inelastic demand.
  • As soon as the line is middle of Horizontal & vertical – Unit elastic demand product.

Conclusion

We can understand from the above example. As the prices increase, the quantity of goods decrease and vice versa. but the things to keep in mind is that expenditure and revenue will be the same as before at all the price level in this category goods

This has been a guide to what is unitary elastic demand and its definition. Here we discuss the unitary elastic demand curve with examples, advantages, and disadvantages. You can learn more about investment from the following articles –

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