Cheyenne and Matteo are discussing more things they’d like to buy if they were to win the lottery, but Sandra chimes in let them know about lump sum payments versus annuities. She explains how the two of them wouldn’t actually get the full amount if they take the lump sum payment and how they are forgetting that they’ll be required to pay taxes on the winnings.
Category: Supply & Demand
Jonah has dressed up a few mannequins to represent women doing particular jobs in the store. Dina comments on how this t-shirt activism is really helpful for the store’s profits, particularly because the outfit that Jonah has put together has a higher price tag than a similar combination targeted at boys. Jonah argues that it promotes gender equality, but Dina points out that the shirt costs $12.99 for women, but only $7.99 for men. Jonah tries to argue from a cost perspective, noting that glitter is more expensive, but Dina argues that it’s just a pink tax, charging women more for the same product, like clothes, razors, and deodorant.
There’s a sale on non-toxic, organic pillows and Garret adds that customers should be weary of what that means the other pillows contain. By providing such labels on certain products, it means customers are likely to assume the alternative products contain harmful ingredients. This asymmetric information, where the store knows more about the products than the customers do, can lead to inefficiencies in the market.
Rationing During a Blizzard
A blizzard hits the St. Louis area and customers are lined up to purchase items they now need. Garrett announces that the store has decided to ration all types of water rather than raise prices in an attempt to prevent people from hoarding water. Another alternative allocation mechanism would be to raise prices, but they have opted instead for an authoritarian approach. As Garrett names the different products under rationing, we also get a list of substitute products which shows the range of product differentiation at the store.
Uber Surge Pricing
A large blizzard has hit the area and the employees have finally decided to go home. While outside, some of the employees appear stuck because public transportation may not be working. Garrett suggests a few of them share an Uber, but because of the increased demand for transportation, the ride is surging to $1,400. The employees decide to head back inside.
While shopping, Jerry recommends getting a candle for their nightstand. He finds a peanut butter scented candle and recommends it to Sandra, who apparently already found a jelly scented candle. Peanut butter and jelly are often used as the classic example of complements in consumption. The price of one item is inversely related to the demand for the other item. Are there other candle scents that could complementary?
Marcus gets the idea to create a new type of cheese using breast milk. He pitches his idea to his coworkers in the hopes that they’ll invest in his product. He believes that breast milk cheese could enter the cheese market and compete with other, more well established varieties.
Willingness to Settle
Mateo has been injured on the job and Cloud 9 is hoping to pay him enough so that he doesn’t sue the company. The problem? Mateo is undocumented and can’t accept the payment because he doesn’t have a social security number. Jeff (the regional manager) doesn’t know the reason and assumes that Mateo is just holding out for more money.
When it comes to buying things (in this case, Mateo’s right to sue), people rarely share their willingness to pay from the beginning. In an effort to earn some consumer surplus, people try to get things for less than they’re willing to pay.
Sushi is on sale, but people should question whether it’s worth the risk? If companies have too many products, it may indicate that the price was set too high. When a surplus exists, firms reduce the price so that the market clears. Unfortunately, the quality may not be as high as it was the day before.
Gluten Free Water
In this brief transition, a customer selects a bottle of gluten free water from an endcap display. Advertising is often used to differentiate products from competitors, even when no apparent difference exists. Water doesn’t contain gluten, but people may be willing to spend more if they believe it does and care enough to avoid it.