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Under the total outlay method, when a change in the price of a good leaves total expenditure (total revenue) on it unchanged, the price elasticity of demand equals:
AGreater than one
BZero
CUnity (one)
DLess than one
Answer & Solution
Correct answer: C. Unity (one)
1. Total expenditure stays the same only if the proportional change in quantity equals the proportional change in price.
2. Equal proportional changes mean the elasticity ratio equals one.
3. The total outlay method calls this unitary elasticity.
4. So the price elasticity of demand is unity.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.25_
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