Question

What will be the elasticity of demand in the following situation?

When total expenditure remains the same in spite of a change in price.

What would be the price elasticity of demand when total expenditure on a commodity remains the same in spite of a change in its price?

Answer 1

When the total expenditure remains the same in spite of a change in price, the elasticity of demand is equal to 1.

• If price increases and demand falls in such a way that total expenditure stays constant, or
• If price decreases and demand rises just enough to keep total expenditure unchanged, it indicates that the percentage change in quantity demanded is exactly equal to the percentage change in price.

Therefore, Elasticity of demand = 1 (i.e., Unitary elastic demand)