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Under the Total Outlay method, demand is said to be unitary elastic when:
ATotal expenditure rises with a fall in price
BTotal expenditure falls with a fall in price
CTotal expenditure is independent of demand
DTotal expenditure remains constant as price changes
Answer & Solution
Correct answer: D. Total expenditure remains constant as price changes
1. Total outlay (= price × quantity) is a function of price and demand.
2. If outlay stays constant with a price change, the proportionate Δ in Q exactly offsets ΔP.
3. That balance defines unitary elasticity (Ep = 1).
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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