Question

Assertion (A): When total expenditure remains constant due to increase or decrease in price, elasticity of demand is equal to unity.

Reason (R): When price falls, total expenditure increases or price rises and total expenditure decreases, elasticity of demand is greater than one.

Options

• Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Explanation:

Both statements are factually correct when using the Total Expenditure Method to measure price elasticity. The assertion is true because when total spending does not vary at all despite price shifts, elasticity is strictly unitary (E_d = 1). The reason is also true because an inverse relationship between price and total spending always implies elastic demand (E_d  > 1). However, the reason does not explain the assertion; rather, it asserts a distinct, independent rule of the expenditure method.