A firm selling good X, initially sets a price of £4 per unit. As a policy to increases sales, it introduces the following quantity discount scheme. If consumers purchase 5 or more units of good X the price falls from £4 to £2.50 per unit. As this is a quantity discount scheme, the new lower price applies to all units of good X the consumer purchases, not just the additional units i.e. those of 5 or more. Using standard consumer choice theory analyse the impact of this quantity discount scheme on a range of consumers with different preferences. Assume they each have a budget of £40 to spend on X and all other goods. Assume that the initial price of X now increases from £4 to £6 per unit while the discounted price remains the same (£2.50 per unit). Illustrate and explain the impact of this price change on the consumers in your previous diagram.
A firm selling good X, initially sets a price of £4 per unit. As a policy to increases sales, it introduces the following quantity discount scheme. If consumers purchase 5 or more units of good X the price falls from £4 to £2.50 per unit. As this is a quantity discount scheme, the new lower price applies to all units of good X the consumer purchases, not just the additional units i.e. those of 5 or more. Using standard consumer choice theory analyse the impact of this quantity discount scheme on a range of consumers with different preferences. Assume they each have a budget of £40 to spend on X and all other goods. Assume that the initial price of X now increases from £4 to £6 per unit while the discounted price remains the same (£2.50 per unit). Illustrate and explain the impact of this price change on the consumers in your previous diagram.
Chapter1: Making Economics Decisions
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
Transcribed Image Text:A firm selling good X, initially sets a price of £4 per unit. As a policy to increases sales,
it introduces the following quantity discount scheme.
If consumers purchase 5 or more units of good X the price falls from £4 to
£2.50 per unit. As this is a quantity discount scheme, the new lower price
applies to all units of good X the consumer purchases, not just the additional
units i.e. those of 5 or more.
Using standard consumer choice theory analyse the impact of this quantity discount
scheme on a range of consumers with different preferences. Assume they each have
a budget of £40 to spend on X and all other goods.
Assume that the initial price of X now increases from £4 to £6 per unit while the
discounted price remains the same (£2.50 per unit). Illustrate and explain the impact
of this price change on the consumers in your previous diagram.
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