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14 Aug 2019, 11:27
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E
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
75%
(hard)
Question Stats:
55% (02:12) correct
45%
(02:03)
wrong
based on 658
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Most economists believe that reducing the price of any product generally stimulates demand for it. However, most wine merchants have found that reducing the price of domestic wines to make them more competitive with imported wines with which they were previously comparably priced is frequently followed by an increase in sales of those imported wines.
Which one of the following, if true, most helps to reconcile the belief of most economists with the consequences observed by most wine merchants?
(A) Economists’ studies of the prices of grocery items and their rates of sales rarely cover alcoholic beverages.
(B) Few merchants of any kind have detailed knowledge of economic theories about the relationship between item prices and sales rates.
(C) Consumers are generally willing to forgo purchasing other items they desire in order to purchase a superior wine.
(D) Imported wines in all price ranges are comparable in quality to domestic wines that cost less.
(E) An increase in the demand for a consumer product is compatible with an increase in demand for a competing product.
Which one of the following, if true, most helps to reconcile the belief of most economists with the consequences observed by most wine merchants?
(A) Economists’ studies of the prices of grocery items and their rates of sales rarely cover alcoholic beverages.
(B) Few merchants of any kind have detailed knowledge of economic theories about the relationship between item prices and sales rates.
(C) Consumers are generally willing to forgo purchasing other items they desire in order to purchase a superior wine.
(D) Imported wines in all price ranges are comparable in quality to domestic wines that cost less.
(E) An increase in the demand for a consumer product is compatible with an increase in demand for a competing product.
sharathnair14
Joined: 05 May 2019
Last visit: 27 May 2020
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Schools: LBS '25 ISB '25 Manchester'26 Stern '26 Tuck '26 INSEAD Aug'24 intake Yale '26 Kellogg '26 Wharton '26
Posts: 160
14 Aug 2019, 11:50
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Alright!
Took me a moment, but the answer E explains why there is an increase in the Imported Wine, in this case, the competing product. The argument doesn't necessarily say that that the demand of the local wine has fallen. We only know that the demand for imported wine has gone up.
I chose B initially but realized it has 2 problems.
1. B talks about a consumer's behaviour, which is out of scope.
2. You'd be tempted to think that Imported Wine = Superior. Which is not the case, or simply because we don't know.
Took me a moment, but the answer E explains why there is an increase in the Imported Wine, in this case, the competing product. The argument doesn't necessarily say that that the demand of the local wine has fallen. We only know that the demand for imported wine has gone up.
I chose B initially but realized it has 2 problems.
1. B talks about a consumer's behaviour, which is out of scope.
2. You'd be tempted to think that Imported Wine = Superior. Which is not the case, or simply because we don't know.
KeyurJoshi
22 Nov 2020, 02:00
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Premise: Price drop increases demand for any product
Paradox: Price drop in domestic wines lead to increase in demand(sales)for imported wines.
Which one of the following, if true, most helps to reconcile the belief of most economists with the consequences observed by most wine merchants?
(A) Economists’ studies of the prices of grocery items and their rates of sales rarely cover alcoholic beverages. - Irrelevant.
(B) Few merchants of any kind have detailed knowledge of economic theories about the relationship between item prices and sales rates. - Irrelvant. Does not really help resolve the paradox.
(C) Consumers are generally willing to forgo purchasing other items they desire in order to purchase a superior wine. - This is a generalization about superior wine. Even if this is true, it doesnt help to understand why the demand for imported wines went up?
(D) Imported wines in all price ranges are comparable in quality to domestic wines that cost less. - Even if this is true, it certainly does not affect the paradox.
(E) An increase in the demand for a consumer product is compatible with an increase in demand for a competing product. - Basically what E says is that...
prices of domestic wines dropped ----> increase in demand for domestic wines
(increase in demand for domestic wine is compatible with increase in demand for imported wine.)
so, people buying domestic wine (bc of the price drop) turned to buy imported wine too. ----> increasing the demand and sale for imported wine.
Paradox: Price drop in domestic wines lead to increase in demand(sales)for imported wines.
Which one of the following, if true, most helps to reconcile the belief of most economists with the consequences observed by most wine merchants?
(A) Economists’ studies of the prices of grocery items and their rates of sales rarely cover alcoholic beverages. - Irrelevant.
(B) Few merchants of any kind have detailed knowledge of economic theories about the relationship between item prices and sales rates. - Irrelvant. Does not really help resolve the paradox.
(C) Consumers are generally willing to forgo purchasing other items they desire in order to purchase a superior wine. - This is a generalization about superior wine. Even if this is true, it doesnt help to understand why the demand for imported wines went up?
(D) Imported wines in all price ranges are comparable in quality to domestic wines that cost less. - Even if this is true, it certainly does not affect the paradox.
(E) An increase in the demand for a consumer product is compatible with an increase in demand for a competing product. - Basically what E says is that...
prices of domestic wines dropped ----> increase in demand for domestic wines
(increase in demand for domestic wine is compatible with increase in demand for imported wine.)
so, people buying domestic wine (bc of the price drop) turned to buy imported wine too. ----> increasing the demand and sale for imported wine.
