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Chapter 4: Q5CCQ (page 157)

Provide an intuitive explanation for why a “buy one, get one free” deal is not the same as a “half-price” sale.

Short Answer

Expert verified

A half-price sale indicates a decrease in the price of commodities to half, whereas, buy-one get one free deal indicates charging full price for a commodity along with selling another at no price.

Step by step solution

01

Term Description

Half-price: It indicates the situation where the consumer buys a commodity at a price that is half of the original price. For example, if the consumer buys a cold drink for $5 on a normal day, he will buy the same cold drink at $2.5 on a half-price sale.

Buy one, get one free: It indicates the situation where the consumer buys a commodity at the original price but in turn receives one more of the same commodity at no cost. For example, if he buys a cold drink for $5, he will receive another cold drink free at buying one get one free sale.

02

The difference between the terms

There is a common misconception among consumers that the “buy one get one free” deal is as similar as “half–price.” Both the deals are different because in the "buy one, get one free" deal, the consumer pays for the price of a whole item, but the consumer gets two items. It does not change the price of any item.

But, with a "half-price" sale, the consumer gets to buy an item with fifty percent off its original market price and the consumer only gets a single item.

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Most popular questions from this chapter

A consumer must divide \(600between the consumption of productXand productY. The relevant market prices arePx=\)10&Py=\(40

a.Write the equation for the consumer’s budget line.

b.Illustrate the consumer’s opportunity set in a carefully labelled diagram.

c.Show how the consumer’s opportunity set changes when the price of goodXincreases to\)20. How does this change alter the market rate of substitution between goodsXandY?

It is common for supermarkets to carry both generic (store-label) and brand name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute four pounds of a generic store-brand sugar for two pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution between store-brand and producer-brand sugar? Assume that this consumer has\(24of income to spend on sugar, and the price of store-brand sugar is\)1per pound and the price of producer-brand sugar is\(3per pound. How much of each type of sugar will be purchased? How would your answer change if the price of store-brand sugar was\)2per pound and the price of producer-brand sugar was$3per pound?

An internal study at Mimeo Corporation—a manufacturer of low-end photocopiers—revealed that each of its workers assembles three photocopiers per hour and is paid \(3 for each assembled copier. Although the company does not have the resources needed to supervise the workers, a full-time inspector verifies the quality of each unit produced before a worker is paid for his or her output. You have been asked by your superior to evaluate a new proposal designed to cut costs. Under the plan, workers would be paid a fixed wage\)8 per hour. Would you favour the plan? Explain.

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

In the following figure, a consumer is initially in equilibrium at pointC .

The consumer’s income is \(400, and the budget line through point C is given by \)400=\(100X+\)200Y .When the consumer is given a $100 gift certificate that is good only at store X , she moves to a new equilibrium at point D.

a.Determine the prices of goods X and Y

b.How many units of product Ycould be purchased at point A ?

c.How many units of product Xcould be purchased at point E?

d.How many units of product X could be purchased at point B ?

e.How many units of product Xcould be purchased at point F?

f.Based on this consumer’s preferences, rank bundlesA,B,C,D in order from most preferred to least preferred.

g.Is product Xa normal or an inferior good?
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