Which of the following combinations are correct about the total expenditure method of measuring elasticity?
A. Total expenditure on a commodity increases with the increase in the price of the commodity then elasticity of demand for that commodity is elastic.
B. Total expenditure on a commodity increases with the increase in the price of the commodity then elasticity of demand for that commodity is inelastic.
C. Demand for that commodity is less responsive to the changes in price of that commodity then total expenditure increases with increase in price.
D. Demand for that commodity is more responsive to the changes in price of that commodity then total expenditure decreases with increase in price.
Choose the correct answer from the options given below:
Which of the following combinations are correct about the total expenditure method of measuring elasticity?
A. Total expenditure on a commodity increases with the increase in the price of the commodity then elasticity of demand for that commodity is elastic.
B. Total expenditure on a commodity increases with the increase in the price of the commodity then elasticity of demand for that commodity is inelastic.
C. Demand for that commodity is less responsive to the changes in price of that commodity then total expenditure increases with increase in price.
D. Demand for that commodity is more responsive to the changes in price of that commodity then total expenditure decreases with increase in price.
Choose the correct answer from the options given below:
Solution
Under the total expenditure method, if expenditure rises with a price rise, demand is inelastic (B), which happens when demand is less responsive to price change (C). If demand is more responsive (elastic), expenditure falls as price rises (D). Statement A is wrong since a price rise raising expenditure indicates inelastic, not elastic, demand. So B, C and D only are correct.
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