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Chapter 2: Problem 15

Assume that firms develop an orangeflavored breakfast drink high in vitamin \(\mathrm{C}\) that is a good substitute for orange juice but sells for less. Based upon assertions in the passage, which of the following would occur with respect to the demand for orange juice? A. Health food stores would resurrect the law of diminishing marginal utility. B. Assuming that the price of fresh orange juice remained constant, more orange juice would be consumed. C. The law of demand would prevail. D. Assuming that the price of fresh orange juice remained constant, the demand would not change. E. There is not enough information in the passage to answer this question.

Short Answer

Expert verified
The correct answer is C. The law of demand would prevail.

Step by step solution

01

Understand the Basics of Demand

The law of demand states that as the price of a good or service increases, the quantity demanded decreases (if all other factors are held constant), and vice versa. In this case, if a cheaper substitute for orange juice enters the market, according to law of demand, consumers will prefer the cheaper alternative, thereby reducing the demand for orange juice.
02

Evaluate the Options

We can eliminate options A, B and D. Option A: The law of diminishing marginal utility is not applicable in this case. Option B: This contradicts the law of demand. If a cheaper, similar product is available, consumers will not consume more of the expensive product. Option D suggests that the demand for orange juice would remain constant which violates the law of demand.
03

Choose the Correct Option

Given these considerations, option C correctly represents the scenario. The cheaper breakfast drink will act as a substitute for orange juice which according to the law of demand, will reduce the demand for orange juice. There is enough information in the passage to answer this question, so option E can be eliminated.

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