Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand. Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that P_DC < P_DP. If P_DC rises but it remains less than P_DP then the consumption of DC. a. Falls from a positive amount to zerob. Falls from a positive amount to another positive amount. c. rises. d. stays at zero.

Question

Maximus

Business

3 June, 00:20

Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand. Diet Coke (DC) or Diet Pepsi (DP) they consume. Suppose further that P_DC < P_DP. If P_DC rises but it remains less than P_DP then the consumption of DC. a. Falls from a positive amount to zerob. Falls from a positive amount to another positive amount. c. rises. d. stays at zero.

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Whitney Franco · Answer 1

b. Falls from a positive amount to another positive amount.

Explanation:

The relevant economics analysis here is indifference analysis in which a combination of two goods will give the same level of utility to the consumer which makes the consumer to be indifferent.

In the question, the person is indifferent between consuming Diet Coke (DC) and Diet Pepsi (DP) since he will derive the same of satisfaction from either of the two.

Since P_DC < P_DP, consumer will consume more of DC. If P_DC rises but it remains less than P_DP, the consumption of DC will fall from a positive amount to another positive amount, because his level of income is assumed to be constant but he can still buy quantity of DC that is higher, though lower than the quantity he could buy before, than quantity of DP at the same constant level of income.

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