When a fall in price of a commodity reduces total expenditure and a rise in price increases it, price elasticity of demand will be :

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Q: 12 (CAPF/2014)
When a fall in price of a commodity reduces total expenditure and a rise in price increases it, price elasticity of demand will be :

question_subject: 

Economics

question_exam: 

CAPF

stats: 

0,31,65,36,31,21,8

keywords: 

{'price elasticity': [0, 0, 0, 3], 'demand': [0, 0, 0, 3], 'commodity': [0, 0, 0, 1], 'total expenditure': [0, 0, 0, 6], 'infinity': [0, 0, 1, 7], 'price': [0, 3, 1, 12], 'rise': [3, 1, 0, 4]}

The correct answer is option 2: < I.

Price elasticity of demand measures the responsiveness of demand to a change in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

In this case, when the price of a commodity falls, the total expenditure on that commodity will decrease if the demand is relatively inelastic. This means that the quantity demanded does not change significantly in response to a change in price.

On the other hand, when the price of a commodity increases, the total expenditure on that commodity will increase if the demand is relatively elastic. This means that the quantity demanded changes significantly in response to a change in price.

Therefore, if a fall in price reduces total expenditure and a rise in price increases it, it indicates that the demand for the commodity is relatively inelastic. The price elasticity of demand in this situation would be less than 1 (< 1), as a small change in price leads to a proportionally smaller change in quantity demanded.

Alert - correct answer should be option 3: > 1.

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