Unit Elastic Demand and Total Expenditure

Steps:

• Recall that unit price elasticity means the percentage change in quantity demanded equals the percentage change in price in absolute value.
• Total expenditure (revenue) equals price times quantity demanded.
• For unit elasticity, a price increase reduces quantity demanded proportionally, keeping the product of price and quantity constant.
• Thus, rising price leaves total expenditure unchanged.

Why C is correct:

• By definition, unit elastic demand (elasticity = -1) results in constant total expenditure, as the formula TR = P × Q shows proportional changes cancel out.

Why the others are wrong:

• A: Incorrect, as a price fall keeps total expenditure the same, not increasing it (that's elastic demand).
• B: Incorrect, as a price fall increases sales but keeps total expenditure constant, not falling (that's inelastic demand).
• D: Incorrect, as expenditure does not vary with price direction in unit elasticity; it stays flat (unlike along a linear demand curve).

Final answer: C