Economics, 3rd Edition

Total Expenditure, Total Revenue and the Price Elasticity of Demand

When studying changes in demand in a market, we are interested in the amount paid by buyers of the 

good which will in turn represent the total revenue that sellers receive. 

Total expenditure

 is given by 

the total amount bought multiplied by the price paid. We can show total expenditure graphically, as in 

Figure 4.2.The height of the box under the demand curve is P and the width is Q. The area of this box, 

P 

× Q, equals the total expenditure in this market. In Figure 4.2, where P = €4 and Q = 100, total expendit-

ure is 

€4 × 100 or €400.

total expenditure

 the amount paid by buyers, computed as the price of the good times the quantity purchased

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CHAPTER 4  ELASTICITY AND ITS APPLICATIONS  77