Question

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:
(a) macaroni is a normal good and price elasticity of demand is greater than 1.
(b) macaroni is an inferior good and price elasticity of supply is equal to zero.
(c) macaroni is an inferior good and price elasticity of supply is infinite.
(d) macaroni is an inferior good and price elasticity of demand is less than 1.

Answer 1

Answer:

(b) macaroni is an inferior good and price elasticity of supply is equal to zero.

Explanation:

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:  macaroni is an inferior good and price elasticity of supply is equal to zero.

Inferior goods are goods whose demand decrease with increase in income, this is true in the scenario because it is stated that ''A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni demanded''

Secondly, in relation to price elasticity of supply, An elasticity of zero indicates that quantity supplied does not respond to a price change: the good is "fixed" in supply. In the scenario, it was clearly stated that there was ''no change in the price of macaroni'' Hence, the price elasticity of supply applicable to the scenario is that of no change in price which is zero.