Question

When a fall in price of the commodity results in increase in total expenditure, the price elasticity of demand will be ______.

Options

• e_p = 1

• e_p = 0

• e_p > 1

• e_p < 1

Answer 1

When a fall in price of the commodity results in increase in total expenditure, the price elasticity of demand will be `bbunderline(e_p > 1)`.

Explanation:

When the percentage change in the quantity demanded of a commodity exceeds the percentage change in its price, the elasticity of demand is greater than unity. The elasticity of demand here is greater than unity. Demand is said to be relatively elastic.