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Elasticity and Total Expenditure

幫考網校2020-08-06 15:20:08

Elasticity and total expenditure are related concepts in economics. Elasticity refers to the responsiveness of the quantity demanded or supplied of a good or service to changes in its price, while total expenditure refers to the total amount spent on a good or service by consumers or producers.

When the demand for a good or service is elastic, a change in its price will result in a proportionately larger change in the quantity demanded. This means that if the price of a good increases, the quantity demanded will decrease by a greater percentage, resulting in a decrease in total expenditure. Conversely, if the price of a good decreases, the quantity demanded will increase by a greater percentage, resulting in an increase in total expenditure.

On the other hand, when the demand for a good or service is inelastic, a change in its price will result in a proportionately smaller change in the quantity demanded. This means that if the price of a good increases, the quantity demanded will decrease by a smaller percentage, resulting in an increase in total expenditure. Conversely, if the price of a good decreases, the quantity demanded will increase by a smaller percentage, resulting in a decrease in total expenditure.

Therefore, the relationship between elasticity and total expenditure depends on the degree of elasticity of demand for a good or service. In general, when demand is elastic, a decrease in price will increase total expenditure, while an increase in price will decrease total expenditure. When demand is inelastic, an increase in price will increase total expenditure, while a decrease in price will decrease total expenditure.