In a market, when the price increased the total expenditure on the good also increased. Is...
In a market, when the price increased the total expenditure on the good also increased. Is demand elastic, inelastic or unit elastic in this region? Explain your answer.
Homework Answers
When the price increased and due to this the total expenditure on the good also increased, the demand will be INELASTIC.
Answer - INELASTIC.
With the increase in the price if the total expenditure also increases, the elasticity of demand will be less than one or inelastic. In this condition the total expenditure will be directly related with the change in the price. Let us understand this situation by the following example.
Let the price of the commodity is $8, and the quantity demanded is 100 units. The expenditure will be $800 (100*$8)
Let the price rises to $10, and the quantity demanded falls to 90 units. The expenditure will be $900 (90*$10)
At this condition, the demand is said to be inelastic because due to increases in the price, the total expenditure too increased.
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