Which type of demand indicates a proportional response to price changes?

Unit elastic demand is characterized by a proportional response to price changes, meaning that when the price of a good or service changes, the quantity demanded changes by the same percentage. For instance, if the price of a product increases by 10%, the quantity demanded would also decrease by 10%. This situation reflects a situation where the price elasticity of demand is exactly one.

Understanding the concept of unit elastic demand is critical because it represents a balance between consumers' sensitivity to price changes and the nature of the good itself. With unit elastic demand, total revenue remains constant when the price changes, as the percentage change in quantity demanded offsets the percentage change in price. This concept is particularly important for businesses in making pricing decisions and for economists assessing market behaviors.