2.2.7—PED and total expenditure

Total expenditure is price multiplied by quantity bought. If demand is elastic, a price rise reduces total expenditure because quantity falls proportionally more; if demand is inelastic, total expenditure rises.

With unitary elasticity, the percentage price and quantity changes offset and total expenditure is approximately unchanged. The result applies over the relevant section and direction of movement.

A 10% price rise with a 20% quantity fall lowers expenditure; a 10% price rise with only a 5% quantity fall raises it.

Do not decide from the price change alone: the demand response and the starting price/quantity determine expenditure.