The price elasticity of demand for cabbage in Southern Ontario has been estimated to be 0.25.If an insect infestation destroys 20% of the region'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 is inelastic (0.25), a decrease in supply will lead to a proportionally smaller decrease in quantity demanded than the increase in price, resulting in higher total expenditures.

The Price Elasticity of Demand for Cabbage in Southern Ontario