Scenario 5-2
The supply of 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 change in equilibrium price will be
A)greater in the cheese market than in the bread market.
B)greater in the bread market than in the cheese market.
C)the same in the cheese and bread markets.
D)Any of the above could be correct.

Question

Quizplus · Accepted Answer

Since the supply of cheese is inelastic, it will not be able to adjust to the decrease in demand as easily as the elastic supply of bread. Therefore, the decrease in demand will lead to a greater decrease in the equilibrium price of cheese compared to bread.

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