Final answer:
Clare's current music streaming service will cost $8.96 per month after a 12% increase, amounting to $107.52 annually, while the competitor's service costs $8.75 per month or $105 annually, making it cheaper for her to switch to the competitor.
Step-by-step explanation:
Clare currently pays a yearly fee of $96 for her music streaming service. With the announced 12% increase, Clare would be paying an additional $11.52 (12% of $96), which brings her new annual fee to $107.52. When we convert the new annual fee to a monthly cost, it will be $107.52 / 12 = $8.96 per month.
Comparatively, the competing music streaming service advertises a rate of $8.75 per month. Over a year, this sums up to $8.75 × 12 = $105.
Therefore, Clare would save money by switching to the advertised service, as it would cost her less annually than her current service with the impending price increase.
Putting this decision into context, it is similar to how Net-flix customers experienced a 60% price hike in 2011 to retain streaming video and DVD rental services.
Therefore, consumers like Clare need to assess such price increases against alternatives to find the most cost-effective options.