Scenario 5-3
The supply of aged cheddar cheese is inelastic,and the supply of bread is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-3.The change in equilibrium price will be
A)greater in the aged cheddar cheese market than in the bread market.
B)greater in the bread market than in the aged cheddar cheese market.
C)the same in the aged cheddar cheese and bread markets.
D)Any of the above could be correct.

Question

Quizplus · Accepted Answer

Since the supply of aged cheddar cheese is inelastic, a decrease in demand will result in a larger decrease in quantity demanded, leading to a greater decrease in equilibrium price. On the other hand, the supply of bread is elastic, so a decrease in demand will have a smaller effect on equilibrium price. Therefore, the change in equilibrium price will be greater in the aged cheddar cheese market than in the bread market.

Scenario 5-3 The Supply of Aged Cheddar Cheese Is Inelastic,and the Supply