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.

---

Definitions:

Tangible Assets

Physical assets that can be seen and touched, such as machinery, buildings, and inventory.

Generate Revenue

The process of earning income from operations or activities, typically through the sale of goods or services.

Alternative Future Uses

Potential different applications or functions which an asset can serve in the future.

Research and Development

Activities undertaken by a business or government in order to innovate and introduce new products, processes, or services, or to improve upon existing ones.