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Question
Write short note on Total expenditure method of measuring Elasticity of Demand.
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Solution
Total Expenditure Method:
Under this method, we measure elasticity of demand by examining the change in the total expenditure due to a change in price.
Prof. Alfred Marshall evolved the total outlay, or total revenue or total expenditure method as a measure of elasticity. By comparing the total expenditure of a purchaser both before and after the change in price, it can be known whether his demand for a good is elastic, unity or less elastic.
Total outlay is price multiplied by the quantity of a good purchased: Total Outlay = Price x Quantity Demanded.
This is explained with the help of the demand schedule above.
Total Expenditure Method:
Under this method, we measure elasticity of demand by examining the change in the total expenditure due to a change in price.
Prof. Alfred Marshall evolved the total outlay, or total revenue or total expenditure method as a measure of elasticity. By comparing the total expenditure of a purchaser both before and after the change in price, it can be known whether his demand for a good is elastic, unity or less elastic.
Total outlay is price multiplied by the quantity of a good purchased: Total Outlay = Price x Quantity Demanded.
This is explained with the help of the demand schedule above.Suggest Corrections
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