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.Total consumer spending on aged cheddar cheese will
A)increase,and total consumer spending on bread will increase.
B)increase,and total consumer spending on bread will decrease.
C)decrease,and total consumer spending on bread will increase.
D)decrease,and total consumer spending on bread will decrease.

Question

Quizplus · Accepted Answer

Since both goods are considered normal goods, a decrease in income will lead to a decrease in demand for both products. However, since the supply of aged cheddar cheese is inelastic, the decrease in demand for aged cheddar cheese will cause a larger decrease in quantity demanded than the decrease in demand for bread, which has elastic supply. Therefore, total consumer spending on aged cheddar cheese and bread will decrease.

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