Answered: B) Does Einstein?s frequent buyer…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The Einstein Bagel Corp. has used a frequent buyer program whereby a consumer receives a stamp each time she purchases one dozen bagels for $6. After a consumer accrues 10 stamps, she receives one dozen bagels free. This offer is an unlimited offer, valid throughout the year. The manager knows her products are normal goods. Given this information, construct the budget set for a consumer who has $200 to spend on bagels and other goods throughout the year.

Income Spent on Other Goods
250
200-
150-
100-
50
Budget Set
Budget Set
0
5
10
15
20
25
30
35
Quantity of Bagels (in dozens)
reset

B) Does Einstein?s frequent buyer program have the same
effect on the consumption of its bagels that would occur if it
simply lowered the price of one dozen bagels by 3 percent?
Yes both result in the same budget set.
No the budget sets will be different.

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