P13. Elasticity and total expend

P13. Elasticity and total expenditure

13.1 Elasticity is defined as the ratio of the percentage change in quantity demanded to the percentage change in price.

13.1.1 If demand is elastic, a decrease in price is associated with a larger percentage rise in quantity demanded.

Demand Elasticity

13.2 When demand is inelastic, a fall in price brings about a fall in total expenditure.

13.3 In summary, when demand is elastic, price and total expenditure move in opposite directions.

13.3.1 In a linear demand curve.

13.3.1.1 Above the midpoint, demand is elastic. In the elastic range, a fall in price accompanies a rise in total expenditure.

13.3.1.2 Below the midpoint, demand is inelastic. In the inelastic range, a fall in price accompanies a fall in total expenditure.