. While at a discount shoe store, a customer asked a clerk, \"I see that your sh

Question

. While at a discount shoe store, a customer asked a clerk, "I see that your shoes are ‘buy one, get one free - limit one free pair per customer.' Will you sell me one pair for half-price?" The clerk answered, "I can't do that." When the customer started to leave the store, the clerk hastily offered,
"However, I am authorized to give you a 40 percent discount on any pair in the store." Assuming the consumer has $200 to spend on shoes (X) or all other goods (Y), and that shoes cost $100 per pair, answer the following questions:
a. Illustrate the consumer's opportunity set with the "buy one, get one free" deal and with a 40 percent discount.
b. Why was the 40 percent discount offered only after the consumer rejected the "buy one, get one free" deal and started to leave the store?
c. Why was the clerk willing to offer a "buy one, get one free" deal, but unwilling to sell a pair of shoes for half-price?
please draw the budget lines showing the four scenarios: initial position (before buy-one-get-one-free), the buy-one-get-one-free offer, the 50% discount on shoes, and the 40% discount on shoes. Then, please draw the customer's indifference curves accordingly.

Explanation / Answer

a) 40% discount is better because the consumer may only need 1 (why pay an extra 10%)

b) Because buy one get one is still better (it is just masked being buy one get one) when in reality the store jacks the price when they offer buy one get one, so it is not really that sweet of a deal alot of times.

c) The clerk is wiling to do buy one get one again (because the they are merely throwing another merchandise that they sell for probably 3 to 4 times their purchase price or more) whereas if you give a 40% discount, your profit margin gets squeezed)

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.