Mme. Asterix asks her housekeeper M. Obelisk to get her some beef tenderloin for
ID: 1189297 • Letter: M
Question
Mme. Asterix asks her housekeeper M. Obelisk to get her some beef tenderloin for dinner from the supermarket. She would like to buy 1Kg for her family if the price was 70 euros per kg, however, if the price was only 20 euros per kg then she would like to buy 3 Kgs (and invite some friends over for dinner). M. Obelisk wonders " The woman is nuts; she wants to pay less in total for more meat than for less! And she actually thinks the supermarket would sell more meat for less money too! Go figure!.
a) Is it irrational behaviour on the part of Asterix to make her purchase plans as described, i.e., that she wants to pay less in total for more meat? Why or why not? (Hint: Calculate her expenditure under each scenario, and consider the relationship between expenditure and elasticity.)
b) Is it sensible on her part to think that supermarkets may sometimes sell more meat for less money compared to some other times? Why or why not?
Explanation / Answer
a) Here as the price has decreased, expenditure has also decreased. This indicates that beef tenderloin has inelastic demand. Here percentage increase in quantity due to increase in price is less than the percentage decrease in price.
b) Yes this might occur if the demand is inelastic.