The demand for movies is unit elastic if a 5 percent change in price leads to a 5 percent change in quantity demanded.

• A. A 5 percent decrease in price leads to an infinite increase in quantity demanded.
• B. Any price increase leads to an equal percentage decrease in quantity demanded.
• C. A 5 percent increase in price leads to a 5 percent increase in total revenue.
• D. A 5 percent increase in price leads to a 5 percent decrease in quantity demanded.

Answer: (D)

The main idea is how demand reacts to price changes. Unit elastic demand means the percentage change in quantity demanded is the same in magnitude as the percentage change in price, but in the opposite direction. In formula terms, elasticity equals the percent change in quantity demanded divided by the percent change in price, and for unit elasticity that ratio is -1.

So, if the price goes up by 5%, unit elasticity requires quantity demanded to fall by 5%. That exact one-to-one response is what option describes. This makes the size of the price change and the quantity change perfectly proportional in magnitude, just with opposite signs.

Why the other ideas don’t fit as neatly: a scenario with an infinite increase in quantity for a price drop describes a perfectly elastic demand, not unit elastic. Saying any price increase causes an equal percent drop in quantity is close in spirit but less precise about the exact one-to-one relationship for the specified change. And noting that a price increase would raise total revenue ignores that, under unit elasticity, the revenue effect is neutral to first order because the percentage drop in quantity offsets the price gain.

So a 5% price increase leading to a 5% decrease in quantity demanded best captures unit elastic demand.