Suppose the price elasticity of demand for a good is – 0.2. How will the expenditure on the good be affected if there is a 10 % increase in the price of the good?
Price elasticity of demand = -0.2
Increase in price – 10%
The price elasticity is less than 1 so demand is inelastic. In this case the increase in price will result in increase in expenditure. In case on inelastic demand the price and expenditure are positively related.