Total expenditure is maximized when demand is perfectly elastic. A) True B) False

Understand the Problem

The question is asking whether total expenditure is maximized when demand is perfectly elastic. This is a statement that relates to economic theory regarding elasticity and consumer behavior.

More Information

When demand is perfectly elastic, consumers will only buy at a specific price. Any increase in price will lead to zero quantity demanded, thus decreasing total expenditure. Total expenditure is maximized where elasticity is unitary (elasticity equals 1).

Tips

A common mistake is confusing perfectly elastic demand with unit elastic demand. Remember that in perfectly elastic demand, any price increase results in no sales, whereas, in unitary elastic demand, total revenue is maximized.

Sources

• 4.2 Elasticity and Revenue – Principles of Microeconomics - pressbooks.bccampus.ca
• Total Expenditure Test: Elasticity of Demand | Vaia - vaia.com