Suppose a decrease of 7% in the price of lobster increases the consumption of lobster by 18%. Such a price decrease will induce households to spend
A) less of their income on lobster.
B) more of their income on lobster.
C) the same amount on lobster as before.
D) less on products that are complementary with lobster.

Question

Quizplus · Accepted Answer

The increase in consumption by 18% despite a 7% decrease in price suggests that the total expenditure on lobster (price x quantity) might increase, leading households to spend more of their income on lobster, assuming the increase in quantity consumed more than offsets the decrease in price.

Suppose a Decrease of 7% in the Price of Lobster