If the total expenditure on automobiles increases when the price of automobiles rises, the price elasticity of demand for automobiles is
A) less than one (demand is inelastic).
B) not determinable from the information given.
C) greater than one (demand is elastic).
D) exactly zero.
E) equal to one (demand is unit elastic).

Question

Quizplus · Accepted Answer

If the total expenditure on automobiles is increasing when the price of automobiles is rising, it means that consumers are not cutting back on their quantity demanded of automobiles (i.e. demand is inelastic). When demand is inelastic, the price elasticity of demand is always less than one. Therefore, the correct answer is A) less than one (demand is inelastic).

If the Total Expenditure on Automobiles Increases When the Price