alleryThe main drawback of the total outlay method of measuring price elasticity is that it:
AApplies only to perfectly inelastic goods
BCannot tell whether demand is elastic or not
CRequires the use of calculus and derivatives
DCannot give the exact coefficient of elasticity
Answer & Solution
Correct answer: D. Cannot give the exact coefficient of elasticity
1. The total outlay method compares total expenditure before and after a price change.
2. It can classify demand as elastic, unitary, or inelastic.
3. However, it cannot produce a precise numerical coefficient.
4. So its main drawback is the inability to find the exact coefficient of price elasticity.
_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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