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Question: Imagine yourself in the following two situations:

a. You are about to go shopping to purchase a stereo system at a local store. Upon reading the newspaper, you find that another stereo store across town has the system you are interested in for $1,089.99. You had been planning to spend $1,099.95, the best price you had found after considerable shopping. Would you drive across town to purchase the stereo system at the other store?

b. You are about to go shopping to purchase a popcorn popper at a local hardware store for $19.95, the best price you have seen yet. Upon reading the paper, you discover that a department store across town has the same popper for $9.99. Would you drive across town to purchase the popper at the department store?

Many people would drive across town to save money on the popcorn popper, but not on the stereo system. Why is this inconsistent with expected utility? What explanation can you give for this behavior?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92333308

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