Q25 of 26 Page 34

Suppose the price elasticity of demand for a good is – 0.2. How will the expenditure on the good be affected if there is a 10 % increase in the price of the good?

Price elasticity of demand = -0.2


Increase in price – 10%


The price elasticity is less than 1 so demand is inelastic. In this case the increase in price will result in increase in expenditure. In case on inelastic demand the price and expenditure are positively related.


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