This is an aspect of consumer behaviour theory which states consumers will stick with regular spending patterns and we are much more likely to choose the easiest option we are given In the real world, we often purchase the goods/services that are presented as the automatic default choice. – We don’t take option to opt-out …
This theory suggests that consumer spending patterns are heavily influenced by the way goods are presented. Changing the way goods are sold/presented to a consumer can strongly influence what is bought. Choice architecture is a method to retain consumer sovereignty (the right to choose) but nudging consumers to make certain choices. The idea of choice …
Earlier in the year, Sony reduced the price of its PlayStation VR bundle from $499 to $449, a significant 10% reduction in price. Given there is significant brand loyalty towards PlayStation (and inelastic demand), what are the possible economic reasons behind cutting the price? Complementary products One very strong reason is to make profit from …
An inferior good occurs when an increase in income causes a fall in demand. An inferior good has a negative income elasticity of demand. (YED) Inferior goods are characterised by low quality – and are goods with better alternatives. For example, if average incomes rise 10%, and demand for holidays in Blackpool falls 2%. The YED …
A devaluation leads to a decline in the value of a currency making exports more competitive and imports more expensive. Generally, a devaluation is likely to contribute to inflationary pressures because of higher import prices and rising demand for exports. However, the overall impact depends on the state of the economy and other factors affecting …
Companies often offer student discounts – from 10% to 50% off. What is the logic behind this student discount – is it compassionate pricing for hard-up students or is there good economic logic to increase profits for firms? Charging different prices to different groups of consumers is known as price discrimination. The idea is that …