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Chapter 4: Q22PA (page 159)

A recent study by Web Mystery Shoppers International indicates that holiday gift cards are becoming increasingly popular at online retailers. Two years ago, online shoppers had to really hunt at most e-retailer’s sites to purchase a gift certificate, but today it is easier to purchase gift cards online than at traditional retail outlets. Do you think online gift cards are merely a fad? Explain carefully.

Short Answer

Expert verified

Online gift cards cannot be observed as merely to be a fad.

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01

Describing holiday gift cards, and online marketing 

Electronic retailing symbolizes the sale of goods and services via the Internet. In these circumstances, online retailers do interact with holiday gift cards at a specific time of the year. That is serialized market need for products, here it is, gift cards.

The gift card industry had a huge impact on the global market as it is a multi-billion dollar industry and is assumed to grow bigger. One significant characteristic of the enterprise and the market represents holiday gift cards which are a kind of one-stop-shop online. Especially, when people are not in the position to go live shopping and visit shopping malls, the gift card market, in general, has a lot more potential to spread and make more competitive.

The gift certificates for specific products were excessively practical in the past. Today it is not even acknowledged as an indication of quality because it can be purchased for a specified amount of money. Online certificates are found across the board and cherished on the online market.

02

Determining if online gift cards are merely a fad

When examining an online gift cards market and approximating findings, we must determine the definition of a fad in a demanding business operated by online retailers of holiday gift cards. When talking about a product as merely a fad, we can say that it is a kind of style or activity that suddenly becomes popular for something. It is believed that a product doesn't stay popular for a very long time, hence a lot of people don't consider its quality and don't understand the complex market.

Gift certificates act as a natural excitement therapy for consumers. It motivates to purchase specific goods. Hence, gift certificates will lead a consumer to purchase a greater quantity of an inferior good than the normal cash gift of the same value. These days, many online retailers can provide full legal and legit proof or certificate for their products. Because of that, it is very difficult for the consumers to differentiate between various qualities and legit or bad and false certificates.

Hence, we can say Online gift cards cannot be observed as merely to be a fad.

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Most popular questions from this chapter

Suppose that a CEO’s goal is to increase profitability and output from her company by bolstering its sales force and that it is known that profits as a function of output are π=40q−2q2(in millions of U.S. dollars). Graph the company’s profit function. Compare and contrast output and profits using the following compensation schemes based on the assumption that sales managers view output and profits as “goods”: (a) the company compensates sales managers solely based on output: (b) the company compensates sales managers solely based on profits: (c) the company compensates sales managers based on a combination of output and profits.

A consumer must spend all of her income on two goods (Xand Y). In each of the following scenarios, indicate whether the equilibrium consumption ofgoods Xand Ywill increase or decrease. Assume good Xis a normal good and good Yis an inferior good.

a.Income doubles.

b.Income quadruples and all prices double.

c.Income and all prices quadruple.

d.Income is halved and all prices double.

Explain four basic properties of a consumer’s preference ordering and their ramifications for a consumer’s indifference curves.

In the answer to Demonstration Problem 4–2 in the text, we showed a situation in which a gift certificate leads a consumer to purchase a greater quantity of an inferior good than he or she would consume if given a cash gift of equal value. Is this always the case? Explain?

Question: Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers’ compensation and has decided to cut the wages of its two employees (Albert and Sid) from \(25 per hour to \)22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of \(25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and equivalently supply 12 hours of labor). After wages were cut to \)22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours?
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