Scenario 5-3
Suppose that 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 price elasticity of supply for bread could be
A) -1.
B) 0.
C) 0.5.
D) 1.5.

Question

Quizplus · Accepted Answer

The supply of bread is elastic, which means the price elasticity of supply is greater than 1. Therefore, 1.5 is a plausible value for the price elasticity of supply for bread.

Scenario 5-3 Suppose That the Supply of Aged Cheddar Cheese Is Inelastic