Application Of Indifference Curve Analysis Price Discount and

10 th Anniversary Promotion A company offers two promotion packages as a celebration of

Would a consumer be better off ? u Suppose a customer can get either

Initial Position INCOME Initial Payment Suppose Mr. A buys Q 1 of Good X

Discount Card INCOME With the card, Mr. A can buy Good X at half

Discount Card INCOME Suppose Mr. A spends the same as before and gets 10

Discount Card INCOME A 0 Suppose Mr. A spends the same as before and

Discount Card INCOME A Suppose Mr. A spends the same as before and gets

Discount Card INCOME Suppose Mr. A spends Mr. A can attain a the same

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . BL

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . His

Coupons (Subsidy in kind) INCOME BL 1 0 10 If Mr. A gets 10

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . After

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . A

Compare Discount Card and Coupons INCOME A Putting the 2 graphs together. . .

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . Coupons

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . BL

Compare Discount Card and Coupons INCOME A 0 Putting the 2 graphs together. .

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . C

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . The

Slides: 31

Download presentation

Application Of Indifference Curve Analysis Price Discount and Subsidy in Kind

10 th Anniversary Promotion A company offers two promotion packages as a celebration of its 10 th anniversary: u A discount card that enables the customers to buy its product (Good X) at 50% discount. u Coupons that can exchange for good X one by one without any other charge.

Would a consumer be better off ? u Suppose a customer can get either a discount card or a coupon free of charge. u When he gets the discount card, Mr. A buys 10 more units of the good X and pays the same amount as before. Would he be better off if he gets 10 coupons instead?

Initial Position INCOME Initial Payment Suppose Mr. A buys Q 1 of Good X before. A IC 1 0 BL 1 Q 1 Good X

Discount Card INCOME With the card, Mr. A can buy Good X at half of the original price. A BL 1 0 IC 1 Good X

Discount Card INCOME With the card, Mr. A can buy Good X at half of the original price. A BL 1 0 IC 1 BL 2 Good X

Discount Card INCOME With the card, Mr. A can buy Good X at half of the original price. Given income unchanged, the customer can buy twice the amount than before. A BL 1 0 IC 1 BL 2 Good X

Discount Card INCOME With the card, Mr. A can buy Good X at half of the original price. A BL 1 0 IC 1 BL 2 Good X

Discount Card INCOME Suppose Mr. A spends the same as before and gets 10 more X. A BL 1 0 IC 1 BL 2 Good X

Discount Card INCOME A 0 Suppose Mr. A spends the same as before and gets 10 more X. B BL 1 Q 2 IC 1 BL 2 Good X

Discount Card INCOME A 0 Suppose Mr. A spends the same as before and gets 10 more X. B BL 1 Q 2 +10 IC 1 BL 2 Good X

Discount Card INCOME A Suppose Mr. A spends the same as before and gets 10 more X. B IC 2 0 BL 1 Q 2 +10 IC 1 BL 2 Good X

Discount Card INCOME Suppose Mr. A spends Mr. A can attain a the same as before higher IC curve withand gets 10 more X. the discount card. A B IC 2 0 BL 1 Q 2 +10 IC 1 BL 2 Good X

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . BL 1 0 Good X

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . BL 1 0 10 Good X

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . His total income has no change, but he can get 10 good X free of charge. BL 1 0 10 Good X

Coupons (Subsidy in kind) INCOME BL 1 0 10 If Mr. A gets 10 coupons. . . BL 3 Good X

Coupons (Subsidy in kind) INCOME If Mr. A gets 10 coupons. . . After the first 10 free-of-charge good X, the rest must be paid at original price. BL 1 0 10 BL 3 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . A BL 1 0 IC 1 Good X

Compare Discount Card and Coupons INCOME A Putting the 2 graphs together. . . B IC 2 0 BL 1 Q 2 IC 1 Discount card BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . Coupons A B IC 2 0 BL 1 Q 2 IC 1 BL 3 Discount card BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . Coupons A B IC 2 0 BL 1 Q 2 10 IC 1 BL 3 Discount card BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . BL 3 will pass through Pt. B because Mr. A buys 10 more good X under discount card. A B IC 2 0 BL 1 Q 2 10 IC 1 BL 3 BL 2 Good X

Compare Discount Card and Coupons INCOME A 0 Putting the 2 graphs together. . . B BL 1 Q 2 IC 3 IC 2 IC 1 BL 3 BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . C A 0 B BL 1 Q 2 IC 3 IC 2 IC 1 BL 3 BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . C A 0 B BL 1 Q 2 IC 3 IC 2 IC 1 BL 3 Mr. A can attain an even higher IC curve with the coupons. BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . The newest consumption point. C A 0 B BL 1 Q 2 IC 3 IC 2 IC 1 BL 3 Mr. A can attain an even higher IC curve with the coupons. BL 2 Good X

Compare Discount Card and Coupons INCOME Putting the 2 graphs together. . . C A 0 B BL 1 Q 3 Q 2 IC 3 IC 2 IC 1 BL 3 BL 2 Good X