Which of the following statements best illustrates the misperception effect?
A)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 22 percent.
B)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 10 percent.
C)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 5 percent.
D)Without the misperception effect, you would not expect the output of cotton to rise when its price has risen 20 percent while other prices have risen 12 percent.

Question

Quizplus · Accepted Answer

The misperception effect occurs when producers misperceive the relative price changes of their products and other products, leading them to make incorrect production decisions. In this case, the misperception effect would lead producers to believe that the price of cotton has risen more than the prices of other products, causing them to increase their output of cotton.

Which of the Following Statements Best Illustrates the Misperception Effect