Question

True or False with Reason:

Total expenditure on a commodity will always fall when price of a commodity falls.

Answer 1

This statement is false.

Explanation:

• The effect of a fall in price on total expenditure depends on price elasticity of demand.
• If demand is elastic, total expenditure rises when price falls; if demand is unitary elastic, total expenditure remains unchanged; if demand is inelastic, total expenditure falls.
• Hence, total expenditure does not always fall when price falls.