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Question
The demand of a commodity, when measured through the expenditure approach, is inelastic. A fall in its price will result in : (choose the correct alternative)
(a) No change in expenditure on it.
(b) Increase in expenditure on it.
(c) Decrease in expenditure on it.
(d) Anyone of the above.
Solution
Decrease in expenditure on it.
Demand for a good is termed inelastic through the expenditure approach when a fall in its price will result in the decrease in expenditure on it. This is because the expenditure is positively related with a price.
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