The price elasticity of demand for cabbage has been estimated to be -0.25.If an insect infestation destroys 20 percent of the nation's cabbage crop, how will that affect total expenditures on cabbage, all other things unchanged?
A) total expenditures will rise
B) total expenditures will fall
C) total expenditures will remain unchanged
D) not enough information is given to answer the question

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for cabbage is inelastic (-0.25), a decrease in supply (such as that caused by an insect infestation destroying 20% of the crop) will lead to an increase in price that proportionally exceeds the decrease in quantity demanded. Consequently, total expenditures on cabbage (price multiplied by quantity) will rise.

The Price Elasticity of Demand for Cabbage Has Been Estimated