tut 6 on chapter 8 - Tutorial 6 on Chapter 8 [You must hand...

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Tutorial 6 on Chapter 8 [You must hand in questions 3, 4 and 5] 1. Mary will drive across town to take advantage of a 40% sale on cosmetics in order to buy a mascara that usually costs R40, but will not do so to take advantage of a 5% off sale on a R2000 ipod. Assuming that her alternative is to pay full list price for both products at the shop across the road from her house, is her behaviour rational? 2. Margaret has decided to open a new savings account. There are two banks in her neighborhood. ABSA offers 6% interest and a free DVD player with each new account. FNB offers 6½ interest but no free DVD player. Suppose the ½ percent is just enough to offset the price of the DVD player after six months, and suppose she has no immediate need for the DVD player. She plans to use it as a gift to her niece who is getting married in six months time. Which bank will she choose if she applies the principles of hedonic framing? What if she is rational? 3. Heather is having difficulty choosing between two tennis racquets, A and B. As shown in the diagram, B has more power than A, but less control. According to the rational choice model, how will the availability of a third alternative – racquet C – influence Heather’s final decision? If Heather behaves like most ordinary decision makers in this situation, how will the addition of C to her choice set matter?
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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tut 6 on chapter 8 - Tutorial 6 on Chapter 8 [You must hand...

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