7 Can we do it?? (number 17)A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the US for $8 per bottle if the consumer purchases up to eight bottles. The price of each additional bottle is only $4. If a consumer has $100 to divide between purchasing this brand of wine and other goods, graphically illustrate how this marketing tactic affects the consumer’s budget line if the price of the other good is $1. Will a consumer ever purchase exactly eight bottles of wine? Explain.
8 Is this useful??XY$DIIIAn individual’s demand curve is derived from each new equilibrium point found on the indifference curve as the price of good X is varied.P0P1X0X1
9 Market DemandThe market demand curve is the horizontal summation of individual demand curves.It indicates the total quantity all consumers would purchase at each price point.$Individual Demand Curves$Market Demand Curve5040D1D2DM1 2QQ
10 Why do firms use buy one get one free?? “Buy one pizza at full price and get a second pizza free”Budget line changes after purchase of one pizzaFlat (zero slope) for SECOND PIZZA onlyThen falls normallyAllows you to reach a higher indifference curveConsumer better offIs the firm better off??Consumers “like” the firm for doing this repeat businessConsumer may buy more pizzas
11 A Classic Marketing Application Other goods (Y)IIIACBFDEPizza (X)0.512A buy-one, get-one free pizza deal.
12 Do you want a gift or cash for your birthday?? Cash moves you to a higher indifference curveExpands your possible consumption bundleWith cash you can purchase anything from anywhere