A discussion of elasticity may seem very technical. However, elasticity is a very important concept for all businesses. Suppose a business wants to increase its revenue by raising prices. It could test elasticity first to see if demand for the product is elastic, inelastic, or unit elastic. In order to determine elasticity, businesses use the total expenditures test. The test is a study of the impact of a price change on total expenditures, or how much consumers spend on a product at a particular price.

Businesses find total expenditures by multiplying the price of a product by the quantity demanded. Then they test elasticity by observing the change in total expenditures between two points on the demand curve. When the demand curve is elastic, the relationship between the change in price and total expenditures is "inverse"when the price goes down, total expenditures go up. When the demand curve is inelastic, total expenditures go down when the price goes down. When the demand curve is unit elastic, total expenditures remain unchanged when the price goes down.

Fill in the correct answers below:

1. When the demand curve is___________________, total expenditures go ______________when the price goes _________________.
2. When the demand curve is ______________________________, total expenditures remain _____________ when the price goes _________________________.