Q4 If a demand curve is described as having a price elasticity of minus unity throughout its entire length, this means that the demand curve is: A a straight line and total expenditure is the same at all prices. B not a straight line and total expenditure rises as price rises. C not a straight line and total expenditure is the same at all prices. D a straight line and total expenditure falls as price rises. May I know why the answer is C for this question ?Tq.
Hi Pxliang if the price elasticity of demand is -1 throughout the length of the curve, then the demand curve will be a rectangular hyperbola and any increase in demand will be exactly offset by a reduction in price and so expenditure (price x quantity) will remain unchanged. This is explained and illustrated very nicely on page 60 of the textbook
