Suppose a Technological Advancement Makes Automobiles 50% Safer,and at the Same

question 47

Multiple Choice

Suppose a technological advancement makes automobiles 50% safer,and at the same time,the prices of automobiles go up by 25%.No other prices in the economy changed.Did the relative price of automobiles rise or fall?

• A) It depends on whether the safety improvements raise the cost of producing automobiles by more than, less than, or exactly 25%.
• B) The relative price of automobiles rose because the price went up by 25% when other prices did not rise.
• C) The relative price of automobiles fell because the price increased by 25% but the safety increased by 50%.
• D) It depends on whether consumers demand safer cars.

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Definitions:

Cost

The amount of money or resources expended to acquire an asset, produce a product, or provide a service.

Markup Percent

The additional percentage on the base cost of merchandise to accommodate for overhead and yield profit.

Selling Price

The amount of money for which a product or service is sold to the customer.

Cost

The amount of money required to purchase, produce, or maintain something.