The price elasticity of demand for cabbage has been estimated to be 0.25.If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply),how will that affect total expenditures on cabbage,all other things equal?
A)Total expenditures will rise.
B)Total expenditures will fall.
C)Total expenditures will remain unchanged.
D)The information is insufficient to answer the question.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for cabbage is inelastic (0.25 < 1), a decrease in supply (due to the insect infestation) will lead to a higher increase in price than the decrease in quantity demanded, resulting in an increase in total expenditures on cabbage.

The Price Elasticity of Demand for Cabbage Has Been Estimated