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Given the following four possibilities, which one results in an increase in total consumer expenditures?
- a)demand is unitary elastic and price falls.
- b)demand is elastic and price rises.
- c)demand is inelastic and price falls.
- d)demand is inelastic and prices rises.
Correct answer is 'D'. Can you explain this answer?
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Given the following four possibilities, which one results in an increa...
Increase in total expenditure, will two effects on price, If price rises then demand is inelastic and if price fall then demand is elastic. In the present case when total expenditure increases then demand will inelastic with rise in price because there is a direct relationship between the price and total expenditure.
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Given the following four possibilities, which one results in an increa...
Increase in Total Consumer Expenditures
Demand Elasticity and Price Changes
- The elasticity of demand refers to how sensitive consumers are to changes in price.
- When demand is elastic, a small change in price will result in a large change in quantity demanded.
- When demand is inelastic, a change in price will result in a small change in quantity demanded.
Possibilities
a) Demand is unitary elastic and price falls:
- When demand is unitary elastic, a change in price will result in an equal change in quantity demanded, maintaining the total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
b) Demand is elastic and price rises:
- When demand is elastic, a small increase in price will result in a large decrease in quantity demanded, reducing the total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
c) Demand is inelastic and price falls:
- When demand is inelastic, a fall in price will result in a small increase in quantity demanded, but the increase in demand is not significant to increase total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
d) Demand is inelastic and prices rise:
- When demand is inelastic, a rise in price will result in a small decrease in quantity demanded, but the decrease in demand is not significant to decrease total consumer expenditures.
- Therefore, in this scenario, there is an increase in total consumer expenditures.
Conclusion
- The correct answer is 'D' because an increase in total consumer expenditures is possible when demand is inelastic and prices rise.
- This scenario implies that consumers are willing to pay more for the product despite the rise in price, resulting in an increase in total consumer expenditures.
Demand Elasticity and Price Changes
- The elasticity of demand refers to how sensitive consumers are to changes in price.
- When demand is elastic, a small change in price will result in a large change in quantity demanded.
- When demand is inelastic, a change in price will result in a small change in quantity demanded.
Possibilities
a) Demand is unitary elastic and price falls:
- When demand is unitary elastic, a change in price will result in an equal change in quantity demanded, maintaining the total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
b) Demand is elastic and price rises:
- When demand is elastic, a small increase in price will result in a large decrease in quantity demanded, reducing the total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
c) Demand is inelastic and price falls:
- When demand is inelastic, a fall in price will result in a small increase in quantity demanded, but the increase in demand is not significant to increase total consumer expenditures.
- Therefore, in this scenario, there is no increase in total consumer expenditures.
d) Demand is inelastic and prices rise:
- When demand is inelastic, a rise in price will result in a small decrease in quantity demanded, but the decrease in demand is not significant to decrease total consumer expenditures.
- Therefore, in this scenario, there is an increase in total consumer expenditures.
Conclusion
- The correct answer is 'D' because an increase in total consumer expenditures is possible when demand is inelastic and prices rise.
- This scenario implies that consumers are willing to pay more for the product despite the rise in price, resulting in an increase in total consumer expenditures.
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Given the following four possibilities, which one results in an increase in total consumer expenditures?a)demand is unitary elastic and price falls.b)demand is elastic and price rises.c)demand is inelastic and price falls.d)demand is inelastic and prices rises.Correct answer is 'D'. Can you explain this answer?
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