A discount shoe store always runs a ’buy one, get one free (limit one free pair per customer)’ campaign. A customer asked a clerk if he would sell her one pair for half price. The clerk answered, ”I’m sorry, I can’t do that.” but when the customer decided to leave the store, the clerk hastily offered, “However, I think I can give you a 40% discount on any pair in the store.” Assuming the consumer has $200 to spend on shoes (X) or all other goods (Y ), and that shoes cost $100 per pair: a. Illustrate the consumer’s opportunity set with the ”buy one, get one free” deal and with a 50 percent discount. b. Why was the 40 percent discount offered only after the consumer rejected the ”buy one, get one free” deal and started to leave the store? c. Why was the clerk willing to offer a “buy one, get one free” deal, but unwilling to sell a pair of shoes for half price?
Exercise 3. A discount shoe store always runs a ’buy one, get one free (limit one free pair per customer)’ campaign. A customer asked a clerk if he would sell her one pair for half price. The clerk answered, ”I’m sorry, I can’t do that.” but when the customer decided to leave the store, the clerk hastily offered, “However, I think I can give you a 40% discount on any pair in the store.” Assuming the consumer has $200 to spend on shoes (X) or all other goods (Y ), and that shoes cost $100 per pair:
a. Illustrate the consumer’s opportunity set with the ”buy one, get one free” deal and with a 50 percent discount.
b. Why was the 40 percent discount offered only after the consumer rejected the ”buy one, get one free” deal and started to leave the store?
c. Why was the clerk willing to offer a “buy one, get one free” deal, but unwilling to sell a pair of shoes for half price?
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