Multiple choice

When as a result of decrease in the price of a commodity, the total expenditure made on it decreases, we say that price elasticity of demand is

  1. less than unity

  2. unity

  3. zero

  4. greater than unity

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When price falls and total expenditure decreases, demand is inelastic (elasticity < 1). This happens because the percentage increase in quantity demanded is smaller than the percentage decrease in price. With elastic demand (elasticity > 1), a price decrease would increase total expenditure because quantity rises proportionally more.