Question

The absolute value of the price elasticity of demand for ground beef has been estimated to be 0.5. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things equal

Answer 1

total expenditure would increase

Step-by-step explanation:

the demand for ground beef is inelastic.

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one.

As a result of the disease, the supply of ground beef would fall. this would lead to a hike in the price of ground beef. But since demand for ground beef is inelastic, the the fall in demand would be less than the rise in price, so total expenditures would rise.