Economics · Ch 4 — Elasticity of Demand

Measuring Price Elasticity — Total Outlay (Total Expenditure) Method

The Total Outlay Method (also called the Total Expenditure Method), proposed by Alfred Marshall, measures elasticity WITHOUT computing a numerical value of $E_d$ at all — it simply compares the consumer's total expenditure (= Price $\times$ Quantity demanded) before and after a price change, and reads off the TYPE of elasticity from how that total expenditure moves.

Note

Total Outlay Method — the rule

If price falls and total outlay (Price $\times$ Quantity) rises — or price rises and total outlay falls — demand is relatively elastic ( $E_d > 1$ ).
If price falls or rises but total outlay remains unchanged — demand is unitary elastic ( $E_d = 1$ ).
If price falls and total outlay also falls — or price rises and total outlay also rises — demand is relatively inelastic ( $E_d < 1$ ). …

Start your 14-day free trial to unlock the full solution →

← Previous · 4Measuring Price Elasticity — Percentage (Proportionate) Method Next · 6 →Measuring Price Elasticity — Point Method and Arc Method