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    Question

    When the price of a commodity decreases, and its demand

    curve forms a rectangular hyperbola, what happens to the total expenditure on that commodity?
    A It increases Correct Answer Incorrect Answer
    B It decreases Correct Answer Incorrect Answer
    C It remains unchanged Correct Answer Incorrect Answer
    D It increases at a constant rate Correct Answer Incorrect Answer

    Solution

    This is because when the demand curve is a rectangular hyperbola, the price elasticity of demand is equal to one (unit elastic). Therefore, a decrease in price is exactly offset by an increase in quantity demanded, leaving total expenditure unchanged.

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