If a price decrease results in your expenditure on a good decreasing, your demand must be

If a price decrease results in your expenditure on a good decreasing, your demand must be

• A. Unit.
• B. Inelastic.
• C. Linear.
• D. Elastic.

Answer: (B)

The main idea is how much quantity demanded responds to a price change, captured by the price elasticity of demand. If the price falls and your total spending on the good also falls, the drop in price isn’t enough to be offset by a rise in quantity. That means demand is inelastic—the quantity rises, but by a smaller percentage than the price falls, so overall expenditure declines. Think of it this way: expenditure is P × Q. With a price drop, you multiply by a smaller price but a sometimes modest increase in quantity. If the elasticity is less than 1 in absolute value, the percentage drop in price dominates the percentage increase in quantity, steering total expenditure downward. For example, a 10% price drop with a 5% rise in quantity gives expenditure of 0.9 × 1.05 = 0.945 of the original, a decline. If expenditure rose after a price drop, the demand would be elastic (elasticity magnitude greater than 1), meaning quantity would rise by a larger percentage than the price falls. If expenditure stayed about the same, the elasticity would be roughly unitary (about 1). The option indicating inelastic demand best fits the scenario.

The main idea is how much quantity demanded responds to a price change, captured by the price elasticity of demand. If the price falls and your total spending on the good also falls, the drop in price isn’t enough to be offset by a rise in quantity. That means demand is inelastic—the quantity rises, but by a smaller percentage than the price falls, so overall expenditure declines.

Think of it this way: expenditure is P × Q. With a price drop, you multiply by a smaller price but a sometimes modest increase in quantity. If the elasticity is less than 1 in absolute value, the percentage drop in price dominates the percentage increase in quantity, steering total expenditure downward. For example, a 10% price drop with a 5% rise in quantity gives expenditure of 0.9 × 1.05 = 0.945 of the original, a decline.

If expenditure rose after a price drop, the demand would be elastic (elasticity magnitude greater than 1), meaning quantity would rise by a larger percentage than the price falls. If expenditure stayed about the same, the elasticity would be roughly unitary (about 1). The option indicating inelastic demand best fits the scenario.