Explain total outlay method of measuring elasticity.
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Changes in price of a good causes a change in total expenditure incurred by a consumer on the good. Under total expenditure method we study effect of change in price of the commodity on its total expenditure.
Accordingly, there can be three possibilities:
1. Elasticity of demand is less than one ( in image)
• If with a fall in price of the commodity, total expenditure Falls and
• If with the rise in price of the commodity, total expenditure Rises i.e.,
• Both price and total expenditure move (change) in the same direction, P.eD is less than one.
For example, it exist in case of a necessity is like fuel, seasonal vegetables etc.
Accordingly, there can be three possibilities:
1. Elasticity of demand is less than one ( in image)
• If with a fall in price of the commodity, total expenditure Falls and
• If with the rise in price of the commodity, total expenditure Rises i.e.,
• Both price and total expenditure move (change) in the same direction, P.eD is less than one.
For example, it exist in case of a necessity is like fuel, seasonal vegetables etc.
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