<p>In my introductory microeconomics class, a problem set had the following question:</p>

<blockquote>
  <p>If the price elasticity of demand for Snickers bars is 1, what will a 1% increase in its price do to the total amount spent on it (not quantity purchased, but total amount spent) each week? </p>
</blockquote>

<p>The answer in the problem set solution released later was as follows:</p>

<blockquote>
  <p>It will leave it unchanged because the percentage change in quantity demanded will exactly offset the percentage change in price.</p>
</blockquote>

<p>My problem with this is that isn't total revenue (and therefore total expenditure) supposed to be maximum when the demand is unitary elastic? If so, shouldn't changing the price when demand is already unitary, decrease revenue/expenditure?</p>

<p>I've also tried numerical examples. If the price of a bar is \$2 and 100 units are being purchased, the expenditure is \$200. If the price increases to \$2.02, the quantity should fall to 99. Now the expenditure would be \$2.02 * 99 = \$199.98, which is lower than \$200.</p>

<microeconomics>
Effect on revenue of changing price of unitary demand elastic product
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# Effect on revenue of changing price of unitary demand elastic product

(Asked by: username_0 on 2018-12-10)

In my introductory microeconomics class, a problem set had the following question:

> If the price elasticity of demand for Snickers bars is 1, what will a 1% increase in its price do to the total amount spent on it (not quantity purchased, but total amount spent) each week?

The answer in the problem set solution released later was as follows:

> It will leave it unchanged because the percentage change in quantity demanded will exactly offset the percentage change in price.

My problem with this is that isn't total revenue (and therefore total expenditure) supposed to be maximum when the demand is unitary elastic? If so, shouldn't changing the price when demand is already unitary, decrease revenue/expenditure?

I've also tried numerical examples. If the price of a bar is \$2 and 100 units are being purchased, the expenditure is \$200. If the price increases to \$2.02, the quantity should fall to 99. Now the expenditure would be \$2.02 \* 99 = \$199.98, which is lower than \$200.

**Tags:** microeconomics


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## 0 answers

