You Explain to Your Roommate Surya, Who Makes Beaded Headbands

question 163

Multiple Choice

You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices.She contends that the theory is incorrect because over the past two years she has lowered the price of her headbands and yet has seen a decrease in sales.How would you respond to Surya?

• A)Surya is right; she has evidence to back her claim. The theory must be erroneous.
• B)Surya is making the mistake of assuming that correlation implies causation.
• C)I will explain to her that she is making the error of reverse causality: it is the decrease in demand that has caused her to lower her prices.
• D)I will explain to her that there are some omitted variables that have contributed to a decrease in her sales such as changes in income.

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Definitions:

Distribution Center

A warehouse or specialized facility where products are stored and sorted for further distribution to retailers or customers.

Finished Goods

are products that have completed the manufacturing process but have not yet been sold or distributed to the end consumer.

Shipment

The process of transporting goods from one location to another, which can involve multiple modes of transport and logistics companies.

Product Design

The process of creating a new product to be sold by a business to its customers, focusing on its features, appearance, and usability.