Question

A cup of Starbucks coffee is just as good as a cup of Dunkin Donuts coffee for me (assuming equal sized cups.) The price of coffee at Starbucks used to be $1.50 compared to $1 at Dunkin Donuts. The price of Starbucks coffee increased. My utility is unchanged after the price changed. True False

Answer 1

The statement that a student's utility is unchanged after the price of Starbucks coffee increased is false because utility would decrease when a preferred product costs more, leading to an opportunity cost if consumption behavior remains the same.

Step-by-step explanation:

The statement that a student's utility is unchanged after the price of Starbucks coffee increased, assuming that they derive equal satisfaction from Starbucks coffee and Dunkin Donuts coffee, would generally be considered false. In economic terms, utility refers to the satisfaction or benefit a consumer receives from consuming a product. When the price of a preferred product increases, and the consumer continues to consume the same amount of that product, the consumer faces an opportunity cost, as they could have substituted the product for a similar, less expensive alternative (in this case, Dunkin Donuts coffee).

If the student valued both Starbucks and Dunkin Donuts coffee equally and the price of Starbucks coffee increased, to maintain the same level of utility, they would have to adjust their consumption behavior, perhaps by switching to the lower-priced Dunkin Donuts coffee. Price hikes, such as the one faced by Netflix customers when they encountered a 60% increase to retain the same service, usually decrease the utility of a consumer if they continue to pay the higher price without change in consumption or perception of value.

Answer 2

TRUE

Step-by-step explanation:

It is given that both Starbucks coffee as well as Dunkin Donuts coffee are both perfect for me. They taste same and the quality of the coffee in both are same. The price of Starbucks coffee is more than the coffee in Dunkin Donuts. As a customer I would prefer the lower cost item i.e. the Dunkin Donuts coffee.

After the pandemic, the price of the Starbucks coffee have increased. But my utility of purchasing coffee from Dunkin Donuts is not changed as the price of the Dunkin Donuts coffee is still the lowest between the two. So I will continue buying coffee from Dunkin Donuts like before. Thus my utility remains unchanged.