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 equilibrium price will
A)increase in both the aged cheddar cheese and bread markets.
B)increase in the aged cheddar cheese market and decrease in the bread market.
C)decrease in the aged cheddar cheese market and increase in the bread market.
D)decrease in both the aged cheddar cheese and bread markets.

Question

Quizplus · Accepted Answer

When demand decreases for both goods, the equilibrium price will decrease. Since the supply of aged cheddar cheese is inelastic, the price will decrease less compared to bread, which has an elastic supply. However, both will experience a decrease in equilibrium price.

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