Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed might not?

Question

Quizplus · Accepted Answer

Rice is a basic necessity with many substitutes, so a price increase would lead to a significant drop in sales as consumers switch to alternatives. Satellite radio, being a luxury or non-essential service, might not see as dramatic a decline since its demand is less sensitive to price changes.

Suppose a Firm in Each of the Two Markets Listed