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CBSE Class 12-commerce Answered

What is total expenditure method? Explain the three possible situations in the total expenditure method.
Asked by Topperlearning User | 25 Apr, 2016, 09:43: AM
answered-by-expert Expert Answer

Total expenditure method is to measure the elasticity of demand. How much change in expenditure with a change in the price of a good are measured through this method. Three possible situations under this method are as follows:

  1. If a rise or fall in the price of a good has no change in its total expenditure, then the elasticity of demand is unitary.
  2. If there is fall in the price of a good, total expenditure increases and if there is rise in the price of a good, the total expenditure decreases, then the demand for that good is greater than unitary elastic.
  3. If there is fall in the price of a good, total expenditure decreases and if there is rise in the price of a good, the total expenditure increases, then the demand for that good is less than unitary elastic.
Answered by | 25 Apr, 2016, 11:43: AM
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