Question

“It is better to pay regular price than to stand in a long line for a free item.”

discuss the statement using

a)Cost benefit analysis

b) Incentive Principles

c) opportunity cost

Answer 1

It is better to pay regular price if:

a) The benefits by paying the regular price is more than the cost of paying the price.

b) If it induces or give some incentive to pay regular price to consume that good as early as possible.

c) If the opportunity cost of choosing free good is more than the price consumer pay as regular price.

As consumers are rational and everyone have limited 24 hours in a day. Assume my per hour wage is $20 and i have to wait for 3 hour to get free good, which will make a loss of $60 as I would not be able to work to get my salary of $20. If that good is worth $80, then my opportunity cost would be higher to go to job and I would be willing to wait in line to get it free. As it would have given me marginal benefit of $80 while its marginal cost was $60 which induces me to wait in line as it would give me incentives to wait in line rather than paying for it.