Scenario 5-4
The supply of aged cheddar 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 5-4. Total consumer spending on aged cheddar cheese will
A) increase, and total consumer spending on bread will increase.
B) increase, and total consumer spending on bread will decrease.
C) decrease, and total consumer spending on bread will increase.
D) decrease, and total consumer spending on bread will decrease.

Question

Quizplus · Accepted Answer

Since both goods are considered normal and the demand for both decreases by 10%, the total consumer spending on both goods will decrease. However, since the supply of aged cheddar cheese is inelastic, its price will not decrease as much as the price of bread, which has elastic supply. Therefore, the percentage decrease in consumer spending on bread will be higher than the percentage decrease in consumer spending on aged cheddar cheese, leading to a decrease in total consumer spending on both goods and a decrease in total consumer spending on bread.

Scenario 5-4 the Supply of Aged Cheddar Cheese Is Inelastic, and the and the Supply