What method calculates elasticity using Total Outlay?

The Total Outlay Method is used to calculate the price elasticity of demand by analyzing the relationship between changes in price and total revenue (or total outlay). This method focuses on how total expenditure on a good changes when the price of that good changes, which directly relates to demand elasticity.

When a price increase occurs, if total revenue also increases, demand is inelastic—meaning consumers are not significantly responsive to the price change. Conversely, if total revenue decreases with a price increase, demand is elastic, indicating a high sensitivity to price changes. If total revenue remains unchanged as price changes, demand is unitary elastic.

This method is particularly useful because it allows for a straightforward observation of how consumer spending responds to variations in price, providing a clear visual representation of elasticity without the need for complex calculations.