Suppose the Price of a Carton of Ice Cream Rises

question 26

Multiple Choice

Suppose the price of a carton of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50. If the CPI rises from 150 to 200, what will people likely buy?

• A) more ice cream and more coffee
• B) more ice cream and less coffee
• C) less ice cream and more coffee
• D) less ice cream and less coffee

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Definitions:

Total Surplus

Total surplus refers to the sum of consumer surplus and producer surplus in a market, representing the overall benefit that market participants gain from engaging in trade.

High-cost Producer

A producer or company which has higher costs of production compared to competitors, often due to inefficient processes or higher input costs.

Low-cost Producer

A manufacturer or service provider with a competitive advantage allowing them to offer goods or services at a lower price than competitors, often due to operational efficiencies.

Consumer Surplus

The variance between the aggregate amount consumers can and will pay for a good or service versus the amount they actually spend on it.