Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Consumer behaviour

Question:

Under which method of price elasticity of demand , one finds out how much and in what direction total expenditure changes as a result of change in the price of a commodity?

Options:

total outlay method

proportionate method

geometric method

percentage method

Correct Answer:

total outlay method

Explanation:

Total outlay method is another name of total expenditure method. Under this the price elasticity of demand is measured by observing the direction of change in total expenditure caused due to change in the price of the commodity. If the total expenditure falls with fall in price i.e. TE and price are in the same direction that means it is less than unitary elastic whereas, if the total expenditure rises with fall in prices i.e. TE and price are in the opposite direction that means it is more than unitary elastic.