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2000 April

R

Robert

Very Active Member
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
 
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