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Question
Would the elasticity of demand in the following case be unity, less than unity or greater than unity?
A rise in the price of a commodity increases total expenditure.
Solution
If a rise in the price of a commodity increases total expenditure on that commodity, the elasticity of demand would be less than unity (i.e., the demand is inelastic).
Inelastic Demand (< 1): When the demand for a commodity is inelastic, a percentage increase in price leads to a smaller decrease in the quantity demanded. As a result, total expenditure on the commodity increases.
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RELATED QUESTIONS
Identify the type of goods having price elasticity of demand greater than 1:
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| Column I | Column II | ||
| (i) | Perfectly elastic demand | A. | Ed = 0 |
| (ii) | Perfectly inelastic demand | B. | Ed = ∞ |
| (iii) | Relatively elastic demand | C. | Ed < 1 |
| (iv) | Relatively inelastic demand | D. | Ed > 1 |
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