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A restaurant sells three wines at $30, $40, and $50 per bottle
A restaurant sells three wines at $30, $40, and $50 per bottle. When it adds another wine to the list at a price of $22, the sales of the $30 wine increase by 50%. This is an example of:
a. context effect
b. risk aversion
c. self-control problems
d. randomization
Expert Solution
The correct answer is a. context effect.
This is because the given case explains an increase in the demand level with a reduction in the price level. This effect can be explained as the context effect of price level on the level of demand. Meanwhile, the risk-aversion effect is majorly considered in the investment and insurance market. Self-control effect cannot be considered in this case as the demand is price elastic. The extent of variation in demand is determined by the price variation of wines.
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