The consumption of bottled water increased dramatically during the 1990s.If consumers' utility schedules for water remained constant over this time period,in order for consumers to stay in equilibrium,the price of bottled water must have
A) risen because marginal utility increased since people consumed more bottled water.
B) fallen.
C) remained constant because the marginal utility schedule did not change.
D) risen because the supply of water must have increased.
E) We don't have enough information to say what happened to the price.

Question

Quizplus · Accepted Answer

If consumers' utility schedules for water remained constant, then their demand for bottled water did not change. However, the consumption increased dramatically during the 1990s, which indicates that there must have been an increase in the supply of bottled water. According to the law of supply, the increase in supply would lead to a decrease in price to reach a new equilibrium. Therefore, the price of bottled water must have fallen to maintain consumers in equilibrium.

The Consumption of Bottled Water Increased Dramatically During the 1990s