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. Total consumer spending on milk will
A)increase, and total consumer spending on steak will increase.
B)decrease, and total consumer spending on steak will decrease.
C)decrease, and total consumer spending on steak will increase.
D)increase, and total consumer spending on steak will decrease.

Question

Quizplus · Accepted Answer

Since milk has an inelastic demand, a decrease in supply will lead to a higher increase in price than the decrease in quantity demanded, thus increasing total spending. For steak, which has an elastic demand, the decrease in supply will lead to a higher decrease in quantity demanded than the increase in price, thus decreasing total spending.

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