Your task for this assignment is as follows:
– Use the microeconomic principles of rational consumer choice to analyse a special offer or deal that you have personally observed.
This is a more focussed version of the assignment that Robert Frank (the lead author of the textbook we are following) uses for his students. Some of the question addressed in the ‘economic naturalist’ section of the textbook are inspired by questions asked by students doing this assignment. Examples used by Frank include “Why do brides spend more on a wedding dress than grooms on their suit?” and “Why are child safety seats required in cars, but not for air travel?”
A video of Robert Frank discussing issues surrounding this sort of assignment (and the teaching of economics more generally)
The point of this assignment is for you to use what we are learning on the course to analyse what we experience around us. I am hoping for some original and interesting assignments. Most things we buy are subject to some sort of special offer at one time or another. We saw in the lectures how this can distort the consumer’s budget constraint and therefore affect their behaviour, several issues emerge from this. You may want to think about one of the following questions to focus your thoughts:
o What is the purpose of the seller in offering this deal? How will it affect their profits?
o Are consumers behaving rationally when confronted with this deal? If not, what should a rational consumer do?
o Does it matter if the goods on offer are normal, inferior, substitutes, or complements with other goods?
o If a consumer has to choose between two or more special offers, which one will maximise their utility?
Some examples (to get you thinking):
– The supermarket Morrissons introduced a new loyalty card last year that gives the customer points when they buy items that are cheaper in other supermarkets. How does this affect the behaviour of supermarket shoppers? Why offer this deal, and not just reduce the prices of your goods?
– A recent study reported on by BBC sport found a large disparity in the price of football tickets around the country. What can explain these differences? How are the prices of football tickets related to the price of associated matchday costs such as food, drinks, and programmes that the study also considers?
– At some tourist attractions, such as museums and safari parks, customers are offered a free (or discounted) return visit when they make their initial purchase. What is the benefit of such a scheme to those offering it?
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