Elasticities can be divided into three broad categories: elastic, inelastic, and unitary. An elastic demand is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand. Unitary elasticities indicate proportional responsiveness of either demand or supply, as summarized in the following table:

If we were to calculate elasticity at every point on a demand curve, we could divide it into these elastic, unit elastic, and inelastic areas, as shown in Figure 4.2a.  This means the impact of a price change will depend on where we are producing. Feel free to calculate the elasticity in any of the regions, you will find that it indeed fits the description.

In reality, the only point we need to find to determine which areas are elastic and inelastic is our point where elasticity is 1, or Point C. This isn’t as hard as it may seem. Since our formula is equal to the inverse of our slope multiplied by a point on the graph, it will only equal 1 when our point is equal to the slope of our graph. 

What about Expenditure

You will notice that expenditure is mentioned whenever revenue is. This is because a dollar earned by the coffee shop corresponds to a dollar spent by the consumer. Therefore, if the firm’s revenue is rising, then the consumer’s expenditure is rising as well. You must understand how to answer questions from both sides.