Explain expenditure method to find price elasticity of demand ?

The Expenditure Method to calculate elasticity is as follows:

(i) If due to fall in price, total expenditure rises and vice-versa, then the demand for a commodity is greater than unitary elastic.

(ii) If due to fall in price of a commodity, total expenditure falls and vice-versa, then the demand for a commodity is less than elastic.

(iii) If with fall or rise in price of a commodity, total expenditure remains the same, then the demand for a commodity is unitary elastic.

However, in order to calculate elasticity of demand by expenditure method, we first need to estimate the total expenditure. Let's say at the price of Rs 5, the consumer consumes 8 units of a commodity, then the total expenditure will be Price × Quantity, that is, 5×8=40.

For example,

If the price of the good falls from Rs 5 to Rs 4, but the total expenditure rises to 44, then the demand for the commodity is said to be greater than unitary elastic.

While, if with fall in price from Rs 5 to Rs 4, the total expenditure also falls to say 36, then the demand for the good is said to be less than elastic.

But, if with fall in price from Rs 5 to Rs 4, the total expenditure remains the same, that is at 40, then the demand for the good is said to be unitary elastic.

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