12. Our consumer here is going to respond to a drop in the price of
long distance calls by calling more. In this case, we need to read
what our choices are before we know what the question is asking.
A quick look at the choices shows that the question has to do
with what happens to her total expenditure on long distance calls when
the price drops. We've dealt with this issue already, though not
exactly in this form.
If price drops, in this case to 1/2 of what
it was, total expenditure will either increase or decrease, depending
on whether demand is elastic or inelastic. We know when
demand is elastic %
Q > %P. So, a reduction in price leads to an increase in total expenditure.
On the other hand if demand is inelastic then %Q < %P and a reduction in price leads to a reduction in total expenditure.
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