# Unit Elastic

## What is Unit Elastic?

Definition: Unit elastic refers to a change in price that results in a proportional change in demand for a certain product. An increase in price will lead to a fall in demand and a decrease in price will have the opposite effect, leading to an increase in demand.

## What does Unit Elastic mean?

Elasticity is an important concept in economics. It can apply to both supply and demand.

For example, if a change in price does not result in a change in demand for a certain product, its demand is said to be inelastic. The demand for certain life-saving medicines could be inelastic. People will buy these medicines regardless of their cost.

On the other hand, the demand for most goods is elastic. A rise in price will lead to a fall in demand. Conversely, if prices fall, demand for most goods will increase.

With this background, you will be able to understand the meaning of unit elastic. If a change in price leads to an equal proportional change in demand, the demand for that good is said to be unit elastic.

The demand for a good is said to be unit elastic if a change in its price results in an equal proportionate change in the demand for it.

## Example of Unit Elastic

Hyonix, a Chinese company that manufactures cell phones, has priced its base model at \$150. It sells 75,000 units every month at this price. When it raises prices by 10% to \$165 per unit, sales drop by 10% to 67,500 units.

Hyonix realizes that the demand for its base model cell phone is unit elastic. An increase in price results in an equally proportionate fall in demand.

## Summary

If the percent change in the demand for a product is equal to the percent change in its price, the demand for that product is unit elastic.