Suppose the price elasticity of demand for a good is - 0.2. How will the expenditure on the good be affected if there is a $10 %$ increase in the price of the good?

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Solution

Total expenditure will rise if there is a $10 %$ rise in the price of good since its demand is inelastic, i.e., $e_{d} = - 0.2$ .

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Suppose the price elasticity of demand for a good is - 0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good?

Total expenditure will rise if there is a 10% rise in the price of good since its demand is inelastic, i.e., ed=−0.2.

Suppose the price elasticity of demand for a good is - 0.2. How will the expenditure on the good be affected if there is a $10 %$ increase in the price of the good?

Total expenditure will rise if there is a $10 %$ rise in the price of good since its demand is inelastic, i.e., $e_{d} = - 0.2$ .