In which of the following, the demand for a good will be highly price elastic?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → When the price of the good and total expenditure on it change in the opposite direction.
When the demand for a good is highly price elastic, even a small change in price causes a large change in quantity demanded. As a result, if the price falls, the quantity demanded rises proportionately more, leading to an increase in total expenditure — meaning price and total expenditure move in opposite directions. Hence, when price and total expenditure change in opposite directions, demand is said to be highly (elastic) price elastic.