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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
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 fall in price brings about a fall in total expenditure. If elasticity were equal to negative one, (unitary elasticity) the percentage decrease in price is just offset by an equal and opposite percentage increase in quantity demanded, so total expenditure does not change at all.
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4.2. Own-Price Elasticity of Demand: Impact on Total Expenditure
, 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. <span>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 fall in price brings about a fall in total expenditure. If elasticity were equal to negative one, (unitary elasticity) the percentage decrease in price is just offset by an equal and opposite percentage increase in quantity demanded, so total expenditure does not change at all. In summary, when demand is elastic, price and total expenditure move in opposite directions. When demand is inelastic, price and total expenditure move in the same directio


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