CA Foundation Exam > CA Foundation Questions > If the demand for a good is inelastic, an inc...
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If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to :
- a)remain the same.
- b)increase.
- c)decrease.
- d)any of these.
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
If the demand for a good is inelastic, an increase in its price will c...
Since the demand for the goods is inelastic, means E>1. It means there is direct relationship between price and total expenditure. Thus with the increase in price the total expenditure also will increase.
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Most Upvoted Answer
If the demand for a good is inelastic, an increase in its price will c...
Explanation:
When the demand for a good is inelastic, it means that the consumers are not very responsive to changes in the price of the good. This means that even if the price of the good increases, the demand for the good will not decrease by a significant amount. As a result, the total expenditure of the consumers of the good will increase.
Example:
Let's say the price of a pack of cigarettes is increased from $5 to $6. If the demand for cigarettes is inelastic, it means that even though the price has increased, the consumers will still continue to buy cigarettes. As a result, the total expenditure of the consumers on cigarettes will increase from $5 to $6.
Formula:
The formula to calculate the total expenditure on a good is:
Total Expenditure = Price x Quantity
Conclusion:
Therefore, if the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to increase. This is because even though the price has increased, the consumers are not very responsive to changes in the price and still continue to buy the good.
When the demand for a good is inelastic, it means that the consumers are not very responsive to changes in the price of the good. This means that even if the price of the good increases, the demand for the good will not decrease by a significant amount. As a result, the total expenditure of the consumers of the good will increase.
Example:
Let's say the price of a pack of cigarettes is increased from $5 to $6. If the demand for cigarettes is inelastic, it means that even though the price has increased, the consumers will still continue to buy cigarettes. As a result, the total expenditure of the consumers on cigarettes will increase from $5 to $6.
Formula:
The formula to calculate the total expenditure on a good is:
Total Expenditure = Price x Quantity
Conclusion:
Therefore, if the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to increase. This is because even though the price has increased, the consumers are not very responsive to changes in the price and still continue to buy the good.
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If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to :a)remain the same.b)increase.c)decrease.d)any of these.Correct answer is option 'B'. Can you explain this answer?
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