ECON 3041 Managerial Economics

Question:

1.Discuss the American pricing dilemma. Use scarcity and value concepts to explain why Americans would rather pay more for a renewable resource (water), than they do for a nonrenewable resource (gas).

2. What are the factors that influence consumers’ willingness and ability to pay more for bottled waters?

3. What is it to pay for a lifestyle.

4. What are the factors that cause water to go from being a “free good” to being a rare commodity with a very high price tag?

5. What could explain the recent rise in gasoline prices? Do you believe that high gasoline prices will continue into the future? Please answer.

6.Does gasoline still have political value? If so, how do you see the balance of economic power shifting from those “without” oil to those with oil?

7.What is the difference in water as a “lifestyle” product and gasoline as an “economic” commodity?

8. How much of this pricing paradox can you explain with economics, lifestyle, or politics?

Answer:

Question 1

America does not have the same water shortage as gasoline.

Americans say that bottled water has a greater value than gasoline. They are therefore willing to pay more to get water that is renewable, rather than gas that is non-renewable.

Question 2

Water by itself

Culture

Americans are buying bottled water at higher prices because they have to pay for both the water and the lifestyle.

Americans love bottled waters, and there is also a part of bottle culture.

Question 3

Based on the above analysis, it appears that the price of a lifestyle is higher than the product’s value.

This could be because consumers desire to belong to a social class associated with high standard of living (Paul 2002).

Accordingly, consumers won’t purchase bottled water for the core purpose of fulfilling an essential need. They will instead identify themselves with a specific class in society.

Americans have a different culture than Africans who must travel long distances in search of water.

This is despite the fact that many Americans have water purifiers at home and are able to buy bottled water, whereas most African communities can not afford reliable water.

The economists’ claim that water scarcity could lead to another kind of war does not have any substantive evidence.

Water is a renewable resource. It is therefore available all year.

Second, water is more expensive than gas. This is because water has a higher real value than gas.

The high lifestyle is what bottled water drinkers attribute to bottled waters.

Third, bottled water retailers have noticed that customers associate high quality water with high prices.

So they increase the price for bottled water each year.

It does not necessarily mean that consumers will not have access to water if it is too expensive.

They can get water from springs or other sources for free and at a very low price.

Question 4.

These aspects will help consumers eat well and maintain a healthy lifestyle.

Marketers appeal to consumers to buy more bottles of water.

Question 5

Petroleum oil is what makes gasoline. It is susceptible to price fluctuations as well as the demand and supply on the global market. This has led to an increase in gasoline in recent times.

Alternately, inflation could cause an increase in gasoline prices.

Question 6

If the United States and other powerful nations like Russia and China continue to exercise hegemony over oil-producing nations, including the Middle East’s gasoline producers, then the United States will continue to be a political commodity.

This is because economic power cannot be balanced.

This makes it difficult for the balance in economic power to shift away from those who don’t have oil and towards those who have.

Question 7

Water is a lifestyle. Those who purchase it at higher prices do so at their will.

Paul, 2002.

However, gasoline is determined by geopolitical factors in oil-producing states.

The federal government also imposes very low taxes to avoid consumers complaining.

Question 8

Two factors usually determine the pricing paradox (Edwards & Holt (2012)).

Bottled water is less expensive than gasoline.

While water is certainly more useful than gasoline in terms of its utility, it is much more costly to extract gasoline than to get water.

But, water pricing is affected by lifestyle.

The pricing paradox of water is based on lifestyle. Water drinkers will spend more and have fewer complaints.

The pricing paradox for gasoline, on the other hand is politically determined and therefore the price is controlled by government.

References

Conceptualisation of pricing paradox in consultancy.

International Journal of Building Pathology and Adaptation. 3(4): 357-378.

Paul, N. C. (2002. August 5).

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