Self-study
Most economists believe that reducing the price of any product generally stimulates demand for it. ████████ ████ ████ █████████ ████ █████ ████ ████████ ███ █████ ██ ████████ █████ ██ ████ ████ ████ ███████████ ████ ████████ █████ ████ █████ ████ ████ ██████████ ██████████ ██████ ██ ██████████ ████████ ██ ██ ████████ ██ █████ ██ █████ ████████ ██████
"Surprising" Phenomenon
Why does reducing the price of domestic wine increase sales of imported wine?
Objective
Any hypothesis resolving this discrepancy must introduce a different economic effect or state a difference between wine and other products. It must explain why increasing the price of domestic wine increases sales for its competitor, imported wine—which is apparently contrary to general economic principle.
22.
Which one of the following, ██ █████ ████ █████ ██ █████████ ███ ██████ ██ ████ ██████████ ████ ███ ████████████ ████████ ██ ████ ████ ██████████
a
Economists' studies of ███ ██████ ██ ███████ █████ ███ █████ █████ ██ █████ ██████ █████ █████████ ██████████
Economists believe that reducing the price of “any product” stimulates demand for it, not just grocery items. The author does not imply that demand for domestic wine is expected to increase because wine is considered a grocery item.
b
Few merchants of ███ ████ ████ ████████ █████████ ██ ████████ ████████ █████ ███ ████████████ ███████ ████ ██████ ███ █████ ██████
This refers to the knowledge of merchants, not economists. The author does not imply that merchants must be expecting higher demand in order for lowering prices to have that effect.
c
Consumers are generally ███████ ██ █████ ██████████ █████ █████ ████ ██████ ██ █████ ██ ████████ █ ████████ █████
This does not state that consumers perceive wines sold at higher prices to be superior. Without knowing whether consumers see imported or domestic wines as superior, this fails to explain the increased demand for imported wine.
d
Imported wines in ███ █████ ██████ ███ ██████████ ██ ███████ ██ ████████ █████ ████ ████ █████
This deepens the mystery. If imported wines are more expensive than domestic wines but of similar quality, then why did demand for them increase?
e
An increase in ███ ██████ ███ █ ████████ ███████ ██ ██████████ ████ ██ ████████ ██ ██████ ███ █ █████████ ████████
This explains why the economic principle is not violated. Lower domestic wine prices caused demand for both types of wine to increase. This is consistent because the author never stated that demand for domestic wine decreased.