Unit elasticity is the economic concept used to mean a percentage change in the quantities demanded of a product of equal magnitude as the percentage change in the price.
So, in economics , this type of unit elasticity is discussed if, for example, a 5% variation in the price of a product results in a reduction in the quantity demanded of the same value, that is, 5% .
Because the change reported in the quantity demanded and equal to the change verified in the price, the elasticity coefficient has a value of 1. This means that the relationship between the variation of the quantity demanded and the price is directly proportional.
Formula for calculating unit elasticity
The formula provided below will allow us to determine if we are facing a type of unit elasticity.
Where:
Q 0 = original quantity
Q 1 = new quantity
P 0 = original price
P 1 = new price
It should be borne in mind that, based on the determined value, to be classified as unit elasticity the coefficient of elasticity determined must be equal to unity.
Example of calculation with unit elasticity
For this we are going to assume the price of a certain product goes from 60 euro to 65, causing a drop in demand of 200 million units to 180 units of it.
From the above we have to:
Q 0 = 200
Q1 = 180
P 0 = 60
P1 = 65
To determine the elasticity coefficient we will use the formula presented above. Which is the following:
Step 1 . The first operation consists in determining the upper part of the formula.
This tells us that the absolute change in the quantities demanded has been 10%
Step 2 . This step consists in determining the lower part of the formula.
This means that the absolute variation in the price of the product has been 10%
Step 3 . Finally, in this step we proceed to replace the values determined in step one and step two in the previous expression.
Know can appreciate the result tells us that the value of the elasticity coefficient is equal to one. This poses a kind of unitary elasticity for good in analysis.
