Suppose that 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 5-3. The price elasticity of supply for aged cheddar cheese could be?

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13 May, 20:51

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Nelson Wood · Answer 1

Elasticity of supply is inelastic which means % change in quantity is less than % change in price. Thus elasticity of supply has to be less than 1.