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 change in equilibrium price will be
A)greater in the milk market than in the steak market.
B)greater in the steak market than in the milk market.
C)the same in the milk and steak markets.
D)unknown without more information.

Question

Quizplus · Accepted Answer

Since milk has an inelastic demand, consumers are less responsive to price changes, meaning a decrease in supply will lead to a relatively large increase in price. Steak has an elastic demand, so consumers are more responsive to price changes, leading to a smaller increase in price for a decrease in supply.

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