Economics, 3rd Edition

Total Expenditure

The total amount paid by buyers, and received as 

expenditure by sellers, equals the area of the box 

under the demand curve, P 

× Q. Here, at a price of €4, 

the quantity demanded is 100 , and total expenditure 

is 

€400.

T t l E

dit

T

FIGURE 4.2

P × Q = €400

(expenditure)

€4

Demand

Price

Quantity

100

0

Q

P

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CHAPTER 4  ELASTICITY AND ITS APPLICATIONS  79

How Total Expenditure Changes When Price Changes: Inelastic Demand

With an inelastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately smaller. 

Therefore, total expenditure (the product of price and quantity) increases. Here, an increase in the price from 

€1 to €3 causes the 

quantity demanded to fall from 100  to 80 , and total expenditure rises from 

€100 to €240.