Final answer:
The Total Outlay Method measures the price elasticity of demand by comparing changes in total expenditure as the price of a good changes. It suggests that demand is elastic, inelastic, or unit elastic based on whether total outlay increases, decreases, or remains unchanged with a price drop, respectively.
Step-by-step explanation:
The Total Outlay Method is a technique used to measure the price elasticity of demand by looking at changes in total expenditure (or total outlay) as the price of a good changes. To calculate the price elasticity of demand using this method, you consider two prices and the corresponding quantities demanded. If the total outlay at the lower price is greater than the total outlay at the higher price, demand is said to be elastic.
If the total outlay doesn't change, demand is unit elastic. And if the total outlay at the lower price is less than the total outlay at the higher price, demand is inelastic.
Let's use the provided data and apply the Total Outlay Method. If we're given a scenario where the price of a good decreases from \$70 to \$60 and the quantity demanded increases from 2,800 units to 3,000 units, we would calculate the total outlay at both price points:
- At \$70, the total outlay is 2,800 units \* \$70 = \$196,000.
- At \$60, the total outlay is 3,000 units \* \$60 = \$180,000.
In this scenario, because the total outlay decreased as the price decreased, we can conclude that the demand is inelastic.