When demand is inelastic, an increase in the price of a commodity would cause the total expenditure of the consumers to ______________.increaseremain unchangeddecreasesfirst increase then decrease (2024)

FAQs

What happens when the demand is inelastic and the price increases? ›

If demand is inelastic, an increase in price leads to a larger increase in total revenue. This is because the percentage decrease in quantity demanded is smaller than the percentage increase in price, resulting in a net positive effect on revenue.

As demand is inelastic, demand does not respond to the change in price, now when the price rises the expenditure also increases since we know, expenditure is the product of price and quantity demanded.

However, if demand is inelastic at the original quantity level, then should the company raise its prices, the percentage increase in price will result in a smaller percentage decrease in the quantity sold—and total revenue will rise.

When the demand of a quantity does not change as a result of a change in the price of a commodity, the demand of that commodity is called a perfectly inelastic demand. In this case, the elasticity of demand is zero.

If demand is inelastic and a monopolist raises its price, total revenue would Increase and total cost would Decrease. Therefore, a monopolist will Never produce a quantity at which the demand curve is inelastic.

Therefore, if a particular good has perfectly inelastic demand and its prices increase, its quantity demanded will remain the same, and consumers will buy it at higher prices. When consumers buy the product at higher prices, the total revenue of the firm increases.

If demand is elastic, a price increase will lead to a decrease in revenue, because the quantity demanded will drop more than the price increase. If demand is inelastic, a price increase will lead to an increase in revenue, because the quantity demanded will drop less than the price increase.

If demand is inelastic, a price decrease will decrease total revenue, while an increase in price will increase total revenue. If demand is unit elastic, total revenue remains constant when prices rise or fall. measures the responsiveness of sellers to changes in the price of a product.

Answer and Explanation:

If demand is relatively elastic at the current price, then a decrease in price will result in an increase in total revenue. True.

What Is Inelastic Demand? "Inelastic" is an economic term referring to the static quantity of a good or service when its price changes. Inelastic demand means that when the price goes up, consumers' buying habits stay about the same, and when the price goes down, consumers' buying habits also remain unchanged.

Is demand inelastic at higher prices? ›

This happens as people can switch to a different product if the price of the original product increases. Conversely, when there are few substitutes for a good or service, demand is more likely to be inelastic, as consumers have fewer options if the price of the original product increases.

Demand for a good is said to be inelastic when the elasticity is less than one in absolute value: that is, changes in price have a relatively small effect on the quantity demanded. Demand for a good is said to be elastic when the elasticity is greater than one.

The Law of Demand

The higher the price, the lower the level of demand. Buyers have finite resources so their spending on a given product or commodity is limited as well. Higher prices reduce the quantity demanded as a result. Demand rises as the product becomes more affordable.

An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied.

The relationship between price elasticity of demand and firms' total revenue stems from this idea: for a price inelastic good, when a firm increases the good's price, demand decreases but at a slower rate than the price increase so a firm can increase revenue through a price increase of the good.

If inelastic: The price effect outweighs the quantity effect, meaning if we increase prices, the revenue gained from the higher price will outweigh the revenue lost from less units sold.