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Demand in a market is given by ?? = 200 / ? (?? is measured in...

Demand in a market is given by ?? = 200 / ? (?? is measured in millions, ? in $)
What happens to consumer spending as P increases? Explain in words how this can happen to someone who has not studied economics.

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Answer #1

The elasticity of demand for the product is 1 here. It means that when the price increase by say 10%, the demand for the product decreases by the same proportion, i.e. 10%. Thus, any price increase will leave the total consumer spending to be the same as the demand decreases in the same proportion.

If elasticity of demand was <1, the total spending will increase. If elasticity of demand was >1, the total spending will decrease.

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