Suppose the own price elasticity of demand for good X is -5, and the quantity of good X decreases by 5 percent. What would you expect to happen to the total expenditures on good X?
A) Increase
B) Decrease
C) Unchanged
D) Neither increase, decrease, nor remain unchanged

Question

Quizplus · Accepted Answer

The own price elasticity of demand for good X is -5, which means that a 1% increase in price will lead to a 5% decrease in quantity demanded. Therefore, a 5% decrease in quantity demanded will result in a 1% increase in price. As price and quantity move in opposite directions, total expenditures (price x quantity) will decrease when quantity decreases but price increases.

Suppose the Own Price Elasticity of Demand for Good X