Question

If the price elasticity of demand for a commodity is greater than 1, then a fall in price will lead to:

• A. Fall in total expenditure
• B. No change in total expenditure
• C. Rise in total expenditure
• D. Zero expenditure

Hint:

Elastic Demand: \[ \text{Price} \downarrow \Rightarrow \text{Total Expenditure} \uparrow \]

Answer 1

The Correct Option is C

Concept: Price Elasticity of Demand measures the responsiveness of quantity demanded due to a change in price. \[ E_d = \frac{%\ \text{change in quantity demanded}}{%\ \text{change in price}} \] When elasticity is greater than 1, demand is said to be elastic.

Step 1: Understanding elastic demand.
In elastic demand, quantity demanded changes proportionately more than the change in price.

Step 2: Effect of fall in price.
When price falls:

• Quantity demanded rises sharply.
• Total expenditure of consumers increases.

Step 3: Applying the concept.
Since demand is elastic \((E_d>1)\), the increase in quantity demanded outweighs the fall in price.

Step 4: Final conclusion.
Hence, total expenditure rises. \[ \boxed{\text{(C) Rise in total expenditure}} \]