Which of the following statements about the expenditure on a good are correct?
(A) If a 10% fall in price raises the quantity by 20%, the expenditure falls.
(B) If a 10% rise in price lowers the quantity by 15%, the expenditure falls.
(C) If a 20% fall in price raises the quantity by 50%, the expenditure rises.
(D) If a 10% rise in price lowers the quantity by 5%, the expenditure falls.
(E) If a 10% fall in price raises the quantity by 4%, the expenditure falls.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (B), (C) and (E) only
Expenditure = price × quantity. If the quantity changes by a larger percentage than price, expenditure moves opposite to price. If it changes by a smaller percentage, expenditure moves with price.
(A) If a 10% fall in price raises the quantity by 20%, the expenditure falls. — Incorrect. Quantity changes more than price, so expenditure moves opposite to price: it rises.
(B) If a 10% rise in price lowers the quantity by 15%, the expenditure falls. — Correct. Quantity changes more, so expenditure moves opposite to the price rise.
(C) If a 20% fall in price raises the quantity by 50%, the expenditure rises. — Correct. Quantity changes more, so expenditure moves opposite to the price fall.
(D) If a 10% rise in price lowers the quantity by 5%, the expenditure falls. — Incorrect. Quantity changes less than price, so expenditure moves with price: it rises.
(E) If a 10% fall in price raises the quantity by 4%, the expenditure falls. — Correct. Quantity changes less, so expenditure falls with price.
NCERT (2026-27): “2.6.3 Elasticity and Expenditure … The expenditure on the good would change in the opposite direction as the price change if and only if the percentage change in quantity is greater than the percentage change in price, ie if the good is price-elastic (see rows 2 and 4 in table 2.5). The expenditure on the good would change in the same direction as the price change if and only if the percentage change in quantity is less than the percentage change in price, i.e., if the good is price inelastic (see rows 1 and 5 in table 2.5). The expenditure on the good would remain unchanged if and only if the percentage change in quantity is equal to the percentage change in price, i.e., if the good is unit-elastic (see rows 3 and 6 in table 2.5).” |