We often observe a price of $0.99 instead of $1.00. Some think that this may be...
We often observe a price of $0.99 instead of $1.00. Some think that this may be because some consumers are inattentive and pay attention to only the first digit of the price. It is also well understood, however, that demand is downward sloping. Suppose you work for a large retailer and have the authority to change prices. You have data on prices as well as sales of each good. How would you test the inattention hypothesis? (minimum 150 words)
Homework Answers
I have data on each good and the sale of each good.
Step 1: Select 30 goods from the complete list. 30 for the assumption of normality.
Step 2: When the price is $1 I have the number of items sold over a period of time (as per existing data).
Step 3: When the price is reduced to $0.99, I have the number of items sold over an equal amount of time.
Step 4: Check the difference between the number of sales.
Step 5: If they are not same then the change is price has an effect.
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