In August 2008, Ethan Nicholas Developed the IShoot Application for the Apple

question 9

Multiple Choice

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,

• A) earning an economic profit in the long run is extremely easy.
• B) earning an economic profit in the long run is extremely difficult.
• C) it is impossible to earn an economic profit in either the short run or the long run.
• D) economic profits are only earned in the long run.

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Definitions:

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, making consumers substitute one good for another.

Normal Good

A Normal Good is a type of good for which demand increases when income increases, and vice versa, holding all other factors constant.

Income Effect

The alteration in the income of a person or an economy and its impact on the demand for a particular good or service.