The demand for a good is unitary elastic. What happens to the total expenditure on the good when its price falls?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → It remains unchanged
When demand is unitary elastic (price elasticity = 1), the quantity demanded changes in the same proportion as the price, in the opposite direction. The fall in price is exactly offset by the rise in quantity, so the total expenditure (price × quantity) does not change. Expenditure would rise if demand were elastic and fall if it were inelastic.