What Simplifying Assumption Does the Elasticity Equation for Predicting Market

question 35

Multiple Choice

What simplifying assumption does the elasticity equation for predicting market share make? 

• A) Advertising is the sole determinant of market share. 
• B) Price is the sole determinant of market share. 
• C) The number of brands in the category is the sole determinant of market share. 
• D) Market share is determined by the combination of the price and advertising. 
• E) Market share is determined by the combination of number of brands and advertising.

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Definitions:

External Costs

Costs of a transaction or activity that affect parties who did not choose to incur that cost, often not reflected in the market price.

Social Cost

The total cost to society as a whole, including both private costs incurred by firms or individuals and external costs imposed on others.

Free Riders

A person who receives the benefit of a good without paying for it. Because it is often virtually impossible to restrict the consumption of public goods to those who pay, these goods are subject to free-rider problems.

Public Good

A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization.