How Will Consumers Generally React to an Increase in the Price

question 14

Multiple Choice

How will consumers generally react to an increase in the price of butter?

• A) They will purchase a larger quantity of butter.
• B) They will substitute other goods like margarine for the more expensive butter.
• C) They will reduce their purchases of substitute goods like margarine.
• D) They will continue purchasing the same quantity of butter at the higher price.

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Definitions:

U.S. Dollar

The official currency of the United States and a standard unit of measurement for global financial transactions.

Triangle Arbitrage

A riskless profit strategy that takes advantage of discrepancies in exchange rates in different markets by conducting a series of conversions among three currencies.

Currency Market

Also known as the foreign exchange market (Forex), it's a decentralized global market where currencies are traded, determining the foreign exchange rates for every currency.

Equilibrium

A state where market supply and demand balance each other, and as a result, prices become stable.