ParadoxDiff: Hard

Logic Breakdown

Passage Summary: Usually, lowering prices makes people buy more, but when domestic wine got cheaper to compete with foreign wine, people actually started buying more of the foreign wine instead.

Reasoning: Economists expect lower prices to increase demand, but when domestic wine prices were lowered to match imported wines, sales of the imported wines actually went up.

Analysis: We need to reconcile the general rule (lower price = more demand) with this weird specific result. The key is the relationship between the two products. If lowering the price of the domestic wine made it *look* cheaper or lower quality compared to the imports, consumers might have flocked to the imports as a 'premium' choice. Alternatively, perhaps the price drop brought new customers into the wine market who then preferred the taste of the imports. Look for an answer that explains how the price change altered consumer perception of the imported wine's value.

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22.

Which one of the following, if true, most helps to reconcile the belief of most economists with the consequences observed by most wine merchants?

Correct Answer
E
Correct. It directly reconciles the two claims by noting that increased demand for one product can coexist with increased demand for a competing product.
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