If the price elasticity of demand is greater than one, it indicates that the demand for the good is elastic. In this scenario:
1. An increase in the price of the good will lead to a more than proportionate decrease in the quantity demanded by consumers. This means that consumers are very responsive to changes in price.
2. Despite the price increase, the total amount consumers spend on the good will decrease. This is because the decrease in quantity demanded will offset the increase in price, resulting in a net decrease in total spending on the good.
3. For example, if the price of a product increases by 10% and the price elasticity of demand is 1.5, the quantity demanded would decrease by more than 10%. As a result, the total amount consumers spend on the product would decrease.
4. In summary, when the price elasticity of demand is greater than one, an increase in the price of a good will lead to a decrease in the total amount consumers spend on that good due to the significant reduction in quantity demanded resulting from the price increase.
