Suppose That a Firm Successfully Introduces a Highly Profitable New

question 106

Multiple Choice

Suppose that a firm successfully introduces a highly profitable new product. If this new product offers less marginal utility per unit to consumers than existing substitute products, then the

• A) laws of economics have been violated.
• B) new product must have increasing, not diminishing, marginal utility.
• C) existing products were being produced at a loss.
• D) new product has a lower price than the existing substitute products.

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Definitions:

Elastic Demand

Reflects how the quantity demanded of a good or service changes in response to a change in price; high elasticity indicates demand is highly sensitive to price changes.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to buy.

Perfectly Elastic

A situation in economic theory where the quantity demanded or supplied responds infinitely to changes in price.

Perfectly Inelastic

A situation in which the demand for a good or service does not change in response to changes in price.