The price elasticity of demand for ground beef has been estimated to be -1.0.If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall by more than 1 percent
C) demand will fall by 1 percent, but total expenditures will fall by less than 1 percent
D) total expenditures will rise

Question

Quizplus · Accepted Answer

The price elasticity of demand being -1.0 indicates unit elasticity, meaning that a percentage change in price leads to an equal percentage change in quantity demanded. Therefore, if supply decreases due to mad cow disease, causing prices to rise, the total expenditure (price times quantity) remains unchanged because the percentage increase in price is exactly offset by a percentage decrease in quantity demanded.

The Price Elasticity of Demand for Ground Beef Has Been