Application Of Indifference Curve Analysis Price Discount and Subsidy in Kind.

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Application Of Indifference Curve Analysis Price Discount and Subsidy in Kind

10th Anniversary Promotion A company offers two promotion packages as a celebration of its 10th anniversary: u A discount card that enables the customers to buy its product (Good X) at 50% discount. u Coupons that can exchange for good X one by one without any other charge.

Would a consumer be better off ? u Suppose a customer can get either a discount card or a coupon free of charge. u When he gets the discount card, Mr. A buys 10 more units of the good X and pays the same amount as before. Would he be better off if he gets 10 coupons instead?

Initial Position IC1 BL1 INCOME A 0Q1 Initial Payment Good X Suppose Mr. A buys Q1 of Good X before.

Discount Card INCOME IC1 BL1 0Good X With the card, Mr. A can buy Good X at half of the original price. A

Discount Card INCOME IC1 BL1 0Good X With the card, Mr. A can buy Good X at half of the original price. BL2 A

Discount Card IC1 BL1 INCOME 0Good X With the card, Mr. A can buy Good X at half of the original price. BL2 A

Discount Card IC1 BL1 INCOME 0Good X With the card, Mr. A can buy Good X at half of the original price. BL2 A

Discount Card IC1 BL1 INCOME 0Good X With the card, Mr. A can buy Good X at half of the original price. BL2 Given income unchanged, the customer can buy twice the amount than before. A

Discount Card IC1 BL1 INCOME 0Good X With the card, Mr. A can buy Good X at half of the original price. BL2 A

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 A

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 A

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 Q1Q2 BA

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 Q1Q2 +10 BA

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 Q1Q2 +10 IC2 BA

Discount Card IC1 BL1 INCOME 0Good X Suppose Mr. A spends the same as before and gets 10 more X. BL2 Q1Q2 +10 IC2 Mr. A can attain a higher IC curve with the discount card. BA

Coupons (Subsidy in kind) BL1 INCOME 0Good X If Mr. A gets 10 coupons...

Coupons (Subsidy in kind) BL1 INCOME 0Good X 10 If Mr. A gets 10 coupons...

Coupons (Subsidy in kind) BL1 INCOME 0Good X If Mr. A gets 10 coupons His total income has no change, but he can get 10 good X free of charge.

Coupons (Subsidy in kind) BL1 INCOME 0Good X If Mr. A gets 10 coupons... BL3 10

Coupons (Subsidy in kind) BL1 INCOME 0Good X If Mr. A gets 10 coupons... BL3 10 After the first 10 free-of-charge good X, the rest must be paid at original price.

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X Putting the 2 graphs together... A

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X Putting the 2 graphs together... BL2 Q1Q2 IC2 BA Discount card

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X Putting the 2 graphs together... BL2 Q1Q2 IC2 BL3 BA Coupons Discount card

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X Putting the 2 graphs together... BL2 Q1Q2 IC2 BL3 10 AB Coupons Discount card

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X Putting the 2 graphs together... BL2 Q1Q2 IC2 BL3 10 BL3 will pass through Pt. B because Mr. A buys 10 more good X under discount card. AB

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X BL2 Q1Q2 IC2 BL3 IC3 BA Putting the 2 graphs together...

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X BL2 Q1Q2 IC2 BL3 IC3 BA C Putting the 2 graphs together...

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X BL2 Q1Q2 IC2 BL3 IC3 BA C Mr. A can attain an even higher IC curve with the coupons. Putting the 2 graphs together...

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X BL2 Q1Q2 IC2 BL3 IC3 BA C Mr. A can attain an even higher IC curve with the coupons. The newest consumption point. Putting the 2 graphs together...

Compare Discount Card and Coupons IC1 BL1 INCOME 0Good X BL2 Q1Q2 IC2 BL3 IC3 BA C Q3 Putting the 2 graphs together...