5.3. How the Consumer Responds to Changes in Price
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We now hold income and the price of one good (wine) constant but decrease the price of the other good (bread). Recall that a decrease in the price of bread pivots the budget constraint outward along the horizontal axis but leaves the vertical intercept unchanged—as in
Exhibit 14 , where we examine two responses to the decrease in the price of bread.
In both cases, when the price of bread falls, the consumer buys more bread. But in the first case, he is quite responsive to the price change, responding with an elastic demand for bread. In the second case, the consumer is still responsive but much less so than the first consumer; this consumer’s response to the price change is inelastic.
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