If the price of gloves increases, will total expenditures on gloves decline?
Yes, total expenditures on gloves will decline if the demand for gloves is elastic. Elastic demand means that a small change in price will lead to a significant change in the quantity demanded. The correct option is B).
Understanding Elasticity of Demand
Elastic Demand: When the demand for gloves is elastic, a price increase will result in a reduction in the quantity demanded, leading to a decline in total expenditures on gloves.
Inelastic Demand: On the other hand, if the demand for gloves is inelastic, a price increase will result in a smaller reduction in the quantity demanded, and total expenditures on gloves may actually increase.
Substitutes and Responsiveness: If there are few good substitutes for gloves and the quantity of gloves purchased is unresponsive to price changes, total expenditures on gloves may not necessarily decline with a price increase.
Real-life Example: For instance, in medical settings where gloves are crucial for procedures and there are no good substitutes, a price increase may not significantly affect the demand, resulting in higher total expenditures on gloves.
In conclusion, the elasticity of demand for gloves plays a pivotal role in determining whether a price increase will lead to a decrease in total expenditures. In the case of elastic demand, total expenditures will decline, while inelastic demand may see an increase in total expenditures. It is essential for businesses and consumers to understand the concept of demand elasticity to make informed decisions.