When a in price of commodity results in in total expenditure elasticity of demand will be greater than 1 Mcq?

When a fall in price of a commodity reduces total expenditure and a rise in price increases it, price elasticity of demand will be:

1. 1
2. < 1
3. > 1
4. Infinity

Answer (Detailed Solution Below)

Option 2 : < 1

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The correct answer is < 1.

• Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price.
• It is computed as the percentage change in quantity demanded or supplied divided by the percentage change in price.
• The price of a good and the demand for the good are inversely related to each other.
• Responsiveness of demand in relation to changes in price (price elasticity of demand) determines the change in expenditure.
• Elasticity is less than one - 
  • ​When demand is inelastic, a fall in the price of a commodity leads to falling in total expenditure on it.
  • On the other hand, when the price increases, the total expenditure also increases.
  • It means, in case of less elastic demand, price, and total expenditure move in the same direction.
• ​Elasticity is more than one -
  • When demand is elastic, a fall in the price of commodity results in an increase in total expenditure on it.
  • On the other hand, when the price increases, the total expenditure decreases.
  • It means, in case of highly elastic demand, price and total expenditure move in the opposite directions. ​
• Elasticity is equal to one -
  • ​When demand is unitary elastic, a fall or rise in the price of the commodity does not change the total expenditure.
  • It means total expenditure will remain unchanged in the case of unitary elastic demand.

When a in price of commodity results in total expenditure elasticity of demand will be greater than 1?

When price elasticity of demand of a good is greater than one expenditure on the good?

When total expenditure increases in response to decrease in the price of the commodity the elasticity of demand is?

What happens to total expenditure on a commodity when its price falls and its demand is price elastic?