Question

Suppose rational decision-maker Dorothy has received a voucher for a free concert ticket that she can use to see either Zoe Boekbinder or Beth Patterson. The following table lists the face price of the tickets and Dorothy's reservation price for each performer. Performer Ticket Face Price Dorothy's Reservation Price Zoe Boekbinder $25 $10 Beth Patterson $25 $15 In the situation above, which concert will Dorothy choose to attend, everything else held constant? Select one: A. Definitely see Zoe Boekbinder. B. She will not attend either concert. C. Definitely see Beth Patterson. D. She will be indifferent between the two choices.

Answer 1

Option C (definitely see Beth Patterson) is the correct answer.

It is because the reservation price is the maximum possible price that an individual is willing to pay for a particular good or service. High reservation price means that the person is willing to pay more for that good than other goods.

Now, in this scenario Dorothy has free concert ticket voucher, it means that she can go to both the concerts for free. But Dorothy will choose the alternative which has higher reservation price as she is willing to pay more for that good or service, that means she desires more of that. Therefore, she will go in Beth Patterson's concert as its reservation price is high.

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