Question

Would the elasticity of demand in the following case be unitary, less than unity or greater than unity?

A rise in the price of a commodity increases the total expenditure on it.

Answer 1

The elasticity of demand is less than unity (e_P < 1). This is because when the price of a commodity rises and total expenditure also increases, it means the fall in quantity demanded is proportionately less than the rise in price, indicating inelastic demand.