A company’s new energy drink is selling well. As a result, the company raises the price to increase profits. Demand stays about the same after this change. Encouraged, the company raises the price again. This time, demand for the energy drink declines, as customers begin buying substitute goods. The company decides to lower the price of the drink.
Answer
A
Consumers limit prices through their buying decisions.
B
Producers may ignore important signals from consumers.
C
Consumers are powerless when producers raise prices.
D
Producers mostly consider production costs when setting prices.
Explanation
When the company raised the price the first time, customers kept buying the drink, so demand stayed about the same. After the second increase, customers switched to substitutes, and the company lowered its price in response. This shows that consumers influence prices through their buying decisions, which is choice A, “Consumers limit prices through their buying decisions.”
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