Scenario 5-3
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 5-3.The equilibrium quantity will
A)increase in both the aged cheddar cheese and bread markets.
B)increase in the aged cheddar cheese market and decrease in the bread market.
C)decrease in the aged cheddar cheese market and increase in the bread market.
D)decrease in both the aged cheddar cheese and bread markets.

Question

Quizplus · Accepted Answer

When demand decreases for both goods due to an income tax increase, the equilibrium quantity will decrease in both markets. The inelastic supply of aged cheddar cheese means quantity supplied doesn't change much, leading to a decrease in equilibrium quantity. The elastic supply of bread means quantity supplied can adjust more, but with decreased demand, equilibrium quantity still falls.

Scenario 5-3 The Supply of Aged Cheddar Cheese Is Inelastic,and the Supply