Inelastic Demand Increases Total Expenditure on Price Rise

Steps:

• Price elasticity of demand (PED) for salt is inelastic (|PED| < 1), meaning quantity demanded changes less than proportionally to price.
• Total consumer expenditure (TE) = price × quantity; for inelastic demand, a price increase causes TE to rise since the percentage drop in quantity is smaller than the percentage price rise.
• The scenario specifies greater expenditure when price changes from P1 to P2, implying P2 > P1 (price rise).
• Diagram must show inelastic demand curve with expanded revenue rectangle after price increase.

Why D is correct:

• D illustrates an inelastic demand curve where the area of the price-quantity rectangle (TE) enlarges when price rises from P1 to P2, per the total revenue rule for inelastic goods.

Why the others are wrong:

• A: Shows elastic demand, where price rise reduces TE.
• B: Depicts price decrease, which lowers TE for inelastic demand.
• C: Illustrates unit elastic demand, where TE remains unchanged on price change.

Final answer: D