What are Elasticity and Expenditure?
The expenditure on a commodity is equivalent to the demand for the commodity times its price. It is important to be aware of how the expenditure on a commodity differs as an outcome of a change in price. The price of a commodity and the demand for the commodity are contrarily associated to each other.
Whether the expenditure on the commodity increases or decreases as an outcome of a rise in its price relies upon how receptive the demand for the commodity is to the change in the price.
Consider an increase in the price of a commodity. If the percentage decrease in the quantity is greater than the percentage increase in the price, then the expenditure on the commodity will decrease. Iif the percentage decrease in the quantity is equivalent to the percentage increase in the price, then the expenditure on the commodity will remain constant.
The expenditure on the commodity would change in the reverse direction as the price changes if and only if the percentage change in the quantity is greater than the percentage change in the price.
The expenditure on the commodity will remain constant if the percentage change in the quantity is equal to the percentage change in the price, that is, if the good is unit-elastic.
This concludes the article about elasticity and expenditure, which is an important topic for commerce students. For more such interesting articles, stay tuned to our website.
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