In the Face of Rising Costs, Some Firms Reduce the Quality

question 24

Multiple Choice

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

• A)People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
• B)Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past.
• C)Firms are myopic in their decision making, with little regard for future profitability.
• D)The availability heuristic will cause people to buy whatever is offered, regardless of the quality.

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Definitions:

Stability

The quality of being resistant to change, disruption, or deterioration, often used to describe systems or relationships.

Adapt And Grow

The ability to adjust to new conditions or challenges and use them as opportunities for personal development and improvement.

Qualitative Changes

Shifts or transformations in the nature, form, or category of phenomena, rather than merely in amount or size.

Personality Development

The gradual evolution of an individual's personality characteristics and behaviors over time, shaped by both innate factors and environmental influences.