Question

Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand, diet coke (dc) or diet pepsi (dp) they consume. Suppose further that pdc < pdp. If pdc rises but it remains less than pdp then the consumption of dc

Answer 1

Answer: b). falls from a positive amount to another positive amount

Explanation: Given that diet coke and diet pepsi give the consumer equal level of satisfaction. Diet coke and diet pepsi are substitutes, since, the consumer does not care about consuming diet pepsi and diet coke.  For substitute goods the consumer will buy the cheapest of the two. When pdc (price of diet coke) rises but it remains less than pdp(price of diet pepsi) then the consumption of dc will decrease but it will still be above the consumption of dp. Since it is still relatively less expensive than diet pepsi. So the consumer will buy diet coke than diet pepsi, which means consumption of diet coke, dc falls from one positive amount to another positive amount.