Answered: A known phenomenon in everyday life is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A4 A known phenomenon in everyday life is that often in a purchase situation there is a deviation between the original asking price from the seller (in form of “manufacturer’s suggested retail price” (MSRP), list price etc.) and the transaction price you as a consumer actually pay in the end. This deviation is due to different forms of tactical discounting practices according to Smith. The seller company usually put in a lot of efforts to managing these price variances. But could you theoretically explain this deviation in a purchase situation out of the consumer’s perspective. This on how it impacts the behavior and decision making of the consumer? Use concepts e.g., like customer utility, willingness-to-pay, consumer surplus, and reference price in your explication. Also, out of your above answer and your now extensive knowledge in pricing theory – what could be major flaws in the proposing argument that it would be better for everybody (society, citizens, consumers, companies etc.) if we could eradicate all discounting practices all together and instead always have one single lowest price offered to the consumer?

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