When a fall in price of a commodity reduces total expenditure and a rise in price increases it, price elasticity of demand will be :
= 1
> 1
Infinity
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UPSC CAPF – 2014
If a fall in price reduces total expenditure (P↓, TE↓), it means the increase in quantity demanded (Q↑) was proportionally smaller than the decrease in price (ΔQ% < |ΔP%|). This is the characteristic of inelastic demand. If a rise in price increases total expenditure (P↑, TE↑), it means the decrease in quantity demanded (Q↓) was proportionally smaller than the increase in price (ΔQ% < |ΔP%|). This is also the characteristic of inelastic demand. In both cases, the price elasticity of demand (|Ed|) is less than 1.