During the Height of the Pet Rock Craze in the 1970s

question 26

Multiple Choice

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.80.Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

• A)leave prices unchanged.
• B)decrease prices.
• C)increase prices.
• D)need more-detailed market information before making any pricing changes.
• E)diversify into selling Karen Carpenter LPs.

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Definitions:

Budget Constraint

An economic model that represents all the combinations of goods and services a consumer can afford given their income and prices.

Opportunity Cost

The value of the best alternative forgone as a result of choosing a particular action or decision.

Pineapples

A tropical fruit with a tough outer shell, sweet and juicy interior, and an ability to thrive in warm climates.

Hotel Accommodations

Lodging and room services provided by hotels to travelers, which can vary widely in terms of quality, amenities, and price.