Total Expenditure and Price Elasticity Relationship

Steps:

• Price elasticity of demand (PED) measures how quantity demanded responds to price changes; total expenditure (TE = P × Q) varies based on PED.
• Elastic demand (PED > 1) means TE falls as price rises, shown by a downward-sloping TE curve.
• Unitary elastic demand (PED = 1) means TE stays constant as price changes, shown by a horizontal TE curve.
• Match choices to standard curves: curve 2 downward-sloping (elastic), curve 3 horizontal (unitary).

Why C is correct:

• Option C assigns elastic to curve 2 (downward slope, TE decreases with price per elasticity definition) and unitary to curve 3 (constant TE, matching PED = 1 formula where %ΔQ = %ΔP).

Why the others are wrong:

• A: Curve 1 typically upward-sloping (inelastic, not elastic); curve 2 is elastic, not unitary.
• B: Curve 1 upward-sloping (inelastic, not unitary); curve 3 elastic, but misassigned.
• D: Curve 3 horizontal (unitary, not elastic); curve 2 elastic, but swapped.

Final answer: C