Question

difference between elastic demand and an inelastic demand when it comes to consumer expenditures or spendings.

Answer 1

The total expenditure that consumers make when purchasing a good depends on the price elasticity of the demand of the good.

The price elasticity of demand = relative change in quantity demanded due to a change in price of the good

Total expenditure = price multiplied by quantity

If the percentage change in quantity demanded is less than the percentage change in the price, the demand of the good is inelastic. While, if the percentage change in quantity demanded is more than the percentage change in the price, the demand of the good is elastic.

Now when it comes to consumer expenditure, the difference between elastic and inelastic demand is :

• If the demand of the good is elastic, then total expenditure of the consumer on the good changes in the opposite direction of price.In simple words, when the demand is elastic

- if the price of the good rises, total expenditure on the good falls and

- if the price of the good falls, total expenditure on the good rises.

• If the demand of the good is inelastic, then total expenditure of the consumer on the good changes in the same direction of price.In simple words, when the demand is elastic

- if the price of the good rises, total expenditure on the good also rises and

- if the price of the good falls, total expenditure on the good also falls.