If the price of a commodity increases by 20%, its demand drops by 20%. Then how it will affect the expenditure?

According to the NCERT Introductory Microeconomics (Chapter 2: Theory of Consumer Behaviour), the relationship between price changes and total expenditure is governed by the Price Elasticity of Demand ($E_d$).

We use the Percentage Method to calculate elasticity:

$E_d = \dfrac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$

Given:

$\% \Delta Q = 20\%$

$\% \Delta P = 20\%$

$E_d = \dfrac{20}{20} = 1$

As per the Total Expenditure Method outlined in NCERT:

When $E_d = 1$, the demand is Unitary Elastic.

In the case of Unitary Elasticity, the total expenditure remains constant regardless of the change in price.

While a discrete mathematical calculation ($1.20P \times 0.80Q = 0.96PQ$) suggests a $4\%$ decline, the CUET/NTA framework follows the theoretical definition of the Percentage Method.

Since the percentage changes are equal, the coefficient is exactly $1$.

Therefore, the expenditure remains unchanged.