(Last Word) Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be
A) more elastic than the demand for the original software.
B) upsloping rather than downsloping.
C) less elastic than the demand for the original software.
D) of less value than the original software.

Question

Quizplus · Accepted Answer

If Microsoft is charging a lower price for a software upgrade, it suggests that they believe the demand for the upgrade is more elastic (i.e. price-sensitive) than the demand for the original software. This is because they are lowering the price to incentivize customers to upgrade, implying that the original price may have been seen as too high. If the demand for the upgrade were less elastic, Microsoft would have less of a need to lower the price to encourage people to switch.

(Last Word) Microsoft Charges a Substantially Lower Price for a Software