question archive If the price of a good decreases and the total expenditure for a consumer on that good increases, then: a
If the price of a good decreases and the total expenditure for a consumer on that good increases, then: a
Subject:EconomicsPrice:2.88 Bought3
If the price of a good decreases and the total expenditure for a consumer on that good increases, then:
a. the consumer surplus attached to the good has increased.
b. the consumer surplus attached to the good has decreased.
c. the price elasticity of demand for the good must be less than one.
d. the price elasticity of demand for the good must be greater than one.
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If the price of a good decreases and the total expenditure for a consumer on that good increases, then: d. the price elasticity of demand for the good must be greater than one.
The total revenue method is probably the easiest way to think about the price elasticity of demand. if the price and the total revenue move in the same direction, then the good has an inelastic demand. If you increase the price and your revenue increases, that means people are willing and able to pay more. An example might be insulin for a diabetic that has to have it. The elasticity is less than one.
On the other hand, if price and total revenue move in opposite directions, as in this example, that means you can increase total revenue and market share by lowering your price because the demand is elastic and greater than one. Many consumer goods fit this model - laundry detergent, toothpaste, shampoo, some food items, etc.
