An increase in a good’s price reduces the total amount consumers spend on the good if the elasticity of demand is less than one.
Understand the Problem
The question is asking about the relationship between the price elasticity of demand and consumers' spending on a good when its price increases. Specifically, it seeks to identify the correct condition regarding elasticity that leads to reduced total spending.
Answer
The price elasticity of demand needs to be greater than one.
The statement is incorrect. An increase in a good's price reduces the total amount consumers spend on the good if the price elasticity of demand is greater than one (elastic demand).
Answer for screen readers
The statement is incorrect. An increase in a good's price reduces the total amount consumers spend on the good if the price elasticity of demand is greater than one (elastic demand).
More Information
When the demand is inelastic (elasticity less than one), total expenditure increases with a price rise. Total expenditure decreases only if the demand is elastic.
Tips
A common mistake is to confuse inelastic demand (elasticity < 1) with elastic demand (elasticity > 1) because they have opposite effects on total revenue in response to price changes.
Sources
AI-generated content may contain errors. Please verify critical information
