Question

 When a good has a unitary price elasticity, consumer expenditures for the good  A) change in the same direction as a price change.  B) change in the opposite direction to a price change, but not necessarily by the same percentage as the price change.  C) do not change when the price of the good decreases.  D) change in the opposite direction and by the same percentage as any price change. Answer: C

Answer 1

When a good has unitary price elasticity, consumer expenditure for the good - ans. (C). Do not change when the price of the good decreases.

It is because when a good is unitary elastic then if it's price decrease by 100% then it's quantity demand will change by 100% i.e it will rise by 100%. More clearly we can say let suppose price of a good is $4 and then it's quantity demand is 10. Now let suppose price decrease then quantity demand will increase at same percentage. As it is unitary elastic consumer expenditure will not chage. If price decrease then quantity demand increase at same percentage. Total expenditure calculated by price per unit multiplied by quantity consumed if price falls then total expenditure falls but quantity will increase at same rate as a result total expenditure remains same. The demand curve for unitary elastic will be rectangular hyperbola. Here percentage change in price is same with percentage change in quantity.