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 equilibrium quantity will
A) increase in the aged cheddar cheese market and increase in the bread market.
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 the aged cheddar cheese market and decrease in the bread market.

Question

Quizplus · Accepted Answer

Since both aged cheddar cheese and bread are normal goods and the demand for both goods decreases by 10%, the equilibrium quantity of both goods will decrease. However, since the supply of aged cheddar cheese is inelastic, the decrease in demand will result in a larger decrease in the equilibrium quantity of aged cheddar cheese compared to bread, which has an elastic supply. Therefore, the equilibrium quantity will decrease in both markets, but the decrease will be larger in the aged cheddar cheese market.

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