Scenario 5-2
Milk has an inelastic demand, and steak has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-2. The equilibrium price will
A)decrease in both the milk and steak markets.
B)increase in the milk market and decrease in the steak market.
C)decrease in the milk market and increase in the steak market.
D)increase in both the milk and steak markets.

Question

Quizplus · Accepted Answer

Given that both milk (inelastic demand) and steak (elastic demand) will see a decrease in supply due to the decrease in cattle population, the equilibrium price for both will increase. For milk, despite its inelastic demand, a reduced supply will lead to a higher price because consumers are relatively unresponsive to price changes. For steak, even though demand is elastic, the significant reduction in supply will also lead to higher prices as the available quantity becomes more scarce.

Scenario 5-2 Milk Has an Inelastic Demand, and Steak Has an Elastic