A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price increase causes households to
A) spend less on flour.
B) spend more on flour.
C) spend the same amount on flour as before.
D) consume more goods like salt and baking powder, which are flour complements.

Question

Quizplus · Accepted Answer

The price elasticity of demand for flour is inelastic (less than 1), meaning the percentage decrease in quantity demanded is less than the percentage increase in price. Therefore, total expenditure on flour increases.

A 20 Percent Increase in the Price of Flour Reduces