A 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The increase causes households to
A) spend more on butter.
B) spend less on butter.
C) spend the same amount on butter.
D) consume more goods like bread that are complements of butter.

Question

Quizplus · Accepted Answer

The price elasticity of demand for butter is inelastic (less than 1), so the percentage decrease in quantity demanded is less than the percentage increase in price, leading to an increase in total expenditure on butter.

A 10 Percent Increase in the Price of Butter Reduces