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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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