The correct answer is Option (3) → Rectangular Hyperbola
Here's the breakdown of the answer choices:
Option 1: Perfectly inelastic demand curve: This curve is vertical, indicating that no matter how much the price changes, the quantity demanded remains constant (elasticity of demand = 0). Since the elasticity of demand is not 1 at every point, this option is incorrect.
Option 2: Perfectly elastic demand curve: This curve is horizontal, indicating that even a slight change in price will lead to an infinite change in quantity demanded (elasticity of demand = infinity). Since the elasticity of demand is not 1 at every point, this option is incorrect.
Option 3: Rectangular Hyperbola: This is the correct answer. When the elasticity of demand is exactly 1 at every point on the demand curve, it forms a rectangular hyperbola. This means that a percentage change in price will lead to an equal percentage change in quantity demanded in the opposite direction. This demand curve is called the unitary elastic demand curve.
Option 4: Greater than Unitary Demand Curve: If the elasticity of demand is greater than 1 at every point on the demand curve, it means that the demand is elastic, and the percentage change in quantity demanded is greater than the percentage change in price. This scenario does not describe a situation where elasticity is exactly 1 at every point. Therefore, this option is incorrect.
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