If coupon clipping is so rewarding, why doesn't everyone do it? According to basic economic theory, the number one reason is that coupon clipping isn't actually free. Sure, it doesn't explicitly cost you money out of your pocket, but it does cost you time to scan newspapers, magazines, and the Internet for savings that sometimes seem insignificant. Economists refer to this as the opportunity cost of clipping coupons. For example, an hour spent dipping coupons means an hour less to spend earning income, enjoying leisure time, or sleeping. For those who have fewer high-value alternatives competing for their time, such as stay-at-home parents or retired senior citizens, coupon dipping may be time well spent. According to the Wall Street Journal (Source: "Doing the Math on Coupons," Wall Street Journal, Brett Arends, last modified February 9, 2010, https://www.wsj.com/articles/S810001424052748704820904575055392244583592), an hour spent looking for coupons can yield as much as $100 in savings. However, for those with high-income jobs and stable employment, searching for coupon deals is likely not high on the priority list. Therefore, coupons allow companies to practice price discrimination. That is, coupons segment the market into different consumer types-those with a high opportunity cost of time (for example, high-income individuals with demanding careers) and, thus, a higher willingness to pay for a good, and those with a low opportunity cost of time (for instance, the unemployed or people not in the workforce) and, thus, a lower willingness to pay. separating consumers into groups based on their willingness to pay and effectively charging each group a different price (since the coupon dippers pay less), producers can increase overall profits.
If coupon clipping is so rewarding, why doesn't everyone do it? According to basic economic theory, the number one reason is that coupon clipping isn't actually free. Sure, it doesn't explicitly cost you money out of your pocket, but it does cost you time to scan newspapers, magazines, and the Internet for savings that sometimes seem insignificant. Economists refer to this as the opportunity cost of clipping coupons. For example, an hour spent dipping coupons means an hour less to spend earning income, enjoying leisure time, or sleeping. For those who have fewer high-value alternatives competing for their time, such as stay-at-home parents or retired senior citizens, coupon dipping may be time well spent. According to the Wall Street Journal (Source: "Doing the Math on Coupons," Wall Street Journal, Brett Arends, last modified February 9, 2010, https://www.wsj.com/articles/S810001424052748704820904575055392244583592), an hour spent looking for coupons can yield as much as $100 in savings. However, for those with high-income jobs and stable employment, searching for coupon deals is likely not high on the priority list. Therefore, coupons allow companies to practice price discrimination. That is, coupons segment the market into different consumer types-those with a high opportunity cost of time (for example, high-income individuals with demanding careers) and, thus, a higher willingness to pay for a good, and those with a low opportunity cost of time (for instance, the unemployed or people not in the workforce) and, thus, a lower willingness to pay. separating consumers into groups based on their willingness to pay and effectively charging each group a different price (since the coupon dippers pay less), producers can increase overall profits.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**The Economic Rationale Behind Coupon Clipping**
If coupon clipping is so rewarding, why doesn't everyone do it? According to basic economic theory, the number one reason is that coupon clipping isn't actually free. Sure, it doesn't explicitly cost you money out of your pocket, but it does cost you time to scan newspapers, magazines, and the Internet for savings that sometimes seem insignificant. Economists refer to this as the opportunity cost of clipping coupons. For example, an hour spent clipping coupons means an hour less to spend earning income, enjoying leisure time, or sleeping.
For those who have fewer high-value alternatives competing for their time, such as stay-at-home parents or retired senior citizens, coupon clipping may be time well spent. According to the Wall Street Journal (Source: "Doing the Math on Coupons," Wall Street Journal, Brett Arends, last modified February 9, 2010, https://www.wsj.com/articles/SB10001424052748704269004575055932294435923), an hour spent looking for coupons can yield as much as $100 in savings. However, for those with high-income jobs and stable employment, searching for coupon deals is likely not high on the priority list. Therefore, coupons allow companies to practice price discrimination. That is, coupons segment the market into different consumer types—those with a high opportunity cost of time (for example, high-income individuals with demanding careers) and, thus, a higher willingness to pay for a good, and those with a low opportunity cost of time (for instance, the unemployed or people not in the workforce) and, thus, a lower willingness to pay. By separating consumers into groups based on their willingness to pay and effectively charging each group a different price (since the coupon dippers pay less), producers can increase overall profits.
**True or False**: According to economic theory, because coupons are free, people who do not clip coupons are behaving irrationally.
- True
- False
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