Refer to the accompanying figure. If the price of a latte increases from $2.00 to $2.50:
A)total expenditure would increase.
B)total expenditure would stay the same.
C)total expenditure would decrease.
D)the change in total expenditure, if any, would depend on the supply curve.

Question

Refer to the accompanying figure. If the price of a latte increases from $2.00 to $2.50: 
A)total expenditure would increase. 
B)total expenditure would stay the same. 
C)total expenditure would decrease. 
D)the change in total expenditure, if any, would depend on the supply curve.

Quizplus · Accepted Answer

When price is $2.00 total expenditure is $2.00 × 30 = $60, when price is $2.50 total expenditure is $2.50 × 20 = $50. Alternatively, when price is $2.00, we are on the elastic portion of the demand curve, implying that as price increases total expenditure will fall.

Refer to the Accompanying Figure