What is total expense?

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Total spend is an economic term used to describe the total amount of money that is spent on a product in a given period of time. This value is obtained by multiplying the quantity of the product purchased by the price at which it was purchased. How total expenditure changes over time depends on price changes over that time period. How much the price change affects the value of expenses is closely related to how elastic the demand for the product can be.

Economists are constantly looking for ways to measure the relationship between price levels for a particular product and the corresponding behavior of consumers towards that product. It’s not as simple as lowering the price of a product to create more purchases of that product. Demand levels are also an important factor in determining at which price level the greatest response to the product will occur. The total spend spent on a given product is always linked to price and demand levels.

To calculate the total spend on a given product at a given time, the quantity of the product sold and the price at which it was sold first need to be known. For example, imagine that a company sells cars and decides on a price of $20,000 US dollars (USD) for a single car. In a given period, the company sells 200 cars at this price. Using this case, total expenses would be 20 multiplied by $20,000 USD, which equals $400,000 USD.

Of course, the number of cars sold was not determined solely by the price level at that particular time. It is important, when considering total expenses, to also consider the amount of demand for that car or any other product and how that affects the amount sold. Economists look closely at the elasticity of demand when considering spending. The elasticity of demand is a measure of how flexible the level of demand can be for a given product.

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In the case of total expenditure, there are three possible outcomes that can occur from different levels of demand elasticity. If demand for a product is relatively elastic, expenditure levels will move in the opposite direction of any price movement. At relatively inelastic levels, spending should move in the same direction as any price change. Finally, when demand is at a baseline level known as the unit elastic, any change in price will have no effect on the value of expenditure on the product.

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