Scenario 5-2
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 5-2.The change in equilibrium quantity will be
A) greater in the aged cheddar cheese market than in the bread market.
B) greater in the bread market than in the aged cheddar cheese market.
C) the same in the aged cheddar cheese and bread markets.
D) may be greater in either the aged cheddar cheese market or the bread market.

Question

Quizplus · Accepted Answer

Since the demand for both goods decreased by the same percentage, the change in equilibrium quantity will depend on the elasticity of supply. In this case, since the supply of aged cheddar cheese is inelastic, the change in quantity will be less than in the bread market where the supply is elastic, making the change in equilibrium quantity greater in the bread market than in the aged cheddar cheese market.

Scenario 5-2 The Supply of Aged Cheddar Cheese Is Inelastic,and the Supply