slides_12_may

Slides_12_may - Why do people buy green products 1 2 3 4 The product is better quality The product is cheaper Buying the product gives the consumer

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Why do people buy green products? 1 1. The product is better quality 2. The product is cheaper 3. Buying the product gives the consumer a “warm glow” 4. Buying the product sends out a positive signal about the consumer‟s type (conspicuous consumption)
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1. Better quality Examples??? Why do people buy it? Heterogeneous tastes/needs Income – desire for quality rather than quantity More expensive, so why do firms sell it? Differentiate their product – make monopoly prices Greenwashing??? 2
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2. Cheaper Examples??? We expect that green should be the default, isn‟t always Why??? Costs to changing – habits and information Given limited time and information and switching costs, it may be rational to “satisfice” rather than optimize. High upfront costs verse future benefits People have high discount rates i.e. impatient Eg Compact Florescent Lightbulb(CFL) Saves money but penetration in U.S. is low – 21% in CA in 2009 3
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CFL vs incandescent Need to calculate present discounted value in order to compare What do we need to know? Upfront costs Intensity of usage Cost of usage (will this change over time?) Expected Lifetime Discount rate 4
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CFL vs Incandescent 75 Watt Incandescent 19 Watt CFL Upfront cost $0.50 $5.00 Intensity of use 2.74 hours per day 2.74 hours per day Cost of electricity $0.1 per kwh $0.1 per kwh Cost of use 0.075*0.1=$0.0075 per hour 0.019*0.1=0.0019 per hour Lifetime 1,000 hours 10,000 hours Discount rate 5 % 5 % 5 • Can we compare 1 CFL with 1 Incandescent?
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CFL vs Incandescent 1 Incandescent lasts 1 year: 2.74*365=1,000 need 10 bulbs for 1 CFL Cost of using incandescent for 1 year = 1,000*0.0075=$7.5 Cost of using CFL for 1 year = 1,000*0.0019=$1.9 PV of incandescent = 0.5+ 8/(1.05) + 8/(1.05) 2 + …+ 8/(1.05) 9 +7.5/(1.05) 10 = $61.97 Draw timeline on board 6
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This note was uploaded on 11/12/2010 for the course ECON M134 taught by Professor Bresnock during the Spring '08 term at UCLA.

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Slides_12_may - Why do people buy green products 1 2 3 4 The product is better quality The product is cheaper Buying the product gives the consumer

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