You Explain to Your Friend, Hanaa (Who Runs a Catering

Multiple Choice

You explain to your friend, Hanaa (who runs a catering service) about an economic theory asserts that consumers will purchase less of a product at higher prices than they will at lower prices. She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales. How would you respond to Hanaa?

A) Hanaa is making the mistake of assuming that correlation implies causation.
B) I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income.
C) Hanaa is right; she has evidence to back her claim. The theory must be erroneous.
D) I will explain to her that she is making the error of reverse causality: it is the increase in demand that has enabled her to raise her prices.