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4.2. Own-Price Elasticity of Demand: Impact on Total Expenditure at elasticity is defined as the ratio of the percentage change in quantity demanded to the percentage change in price. So if demand is elastic, a decrease in price is associated with a larger percentage rise in quantity demanded. For example, <span>if elasticity were equal to negative two, then the percentage change in quantity demanded would be twice as large as the percentage change in price. It follows that a 10 percent fall in price would bring about a rise in quantity of greater magnitude, in this case 20 percent. True, each unit of the good has a lower price, but a sufficiently greater number of units are purchased so that total expenditure (price times quantity) would rise as price falls when demand is elastic.
If demand is inelastic, however, a 10 percent fall in price brings about a rise in quantity less than 10 percent in magnitude. Consequently, when demand is inelastic, a fal
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