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1.1.1 total outlay method of price elasticity of demand
By analysing the changes in total expenditure of consumer, we can know the price elasticity of demand for the good. However, it should be noted that by this method we can only say whether the demand for a good is elastic or inelastic; we cannot find out the exact coefficient of price elasticity.
- When, as a result of the change in price of a good, the total expenditure on the good remains the same, the price elasticity for the good is equal to unity.
- When, as a result of increase in price of a good, the total expenditure made on the good falls or when as a result of decrease in price, the total expenditure made on the good increases, we say that price elasticity of demand is greater than unity.
- When, as a result of increase in the price of a good, the total expenditure made on the good increases or when as a result of decrease in its price, the total expenditure made on the good falls, we say that price elasticity of demand is less than unity.
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