¶ … Mankiw's Principles Of Economics
When consumers elect to invest in discount offers by merchants, they are faced with a number of variables that will affect the value they perceive from the discount offered compared to the amount of money and time that will be required to secure it. To the extent that this cost-benefit analysis results in a perceived positive return on their investment will likely be the extent to which consumers are more likely to invest in discount offers. To gain some fresh insights into this tendency, this paper provides a review of the literature concerning Mankiw's first four principles of economics as they apply to a vignette involving consumers spending more than they planned to obtain a discount card that will only provide them with discounts in the future. A description of some salient examples and evidence in support of the rationale involved in this decision-making process is followed by a summary of the research and important findings concerning Mankiw's ten principles of economics in the conclusion.
Rational Decision-Making Using Mankiw's Ten Principles of Economics
According to Mankiw's...
A consumer faced with the decision as to whether to invest in a discount card at a
supermarket that provides future discounts on gasoline purchases also requires a cost-benefit analysis that is consistent with Mankiw's third principle: "A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost."
Therefore, consumers who do not drive much or only shop at this supermarket occasionally because they live across town may be far more reluctant to invest in a gasoline discount card by spending more than they planned if they are not geographically proximate compared to consumers who live in the neighborhood. It is reasonable to posit that most rational consumers would include this type of implicit cost in their cost-benefit analysis, even if only subconsciously.
In addition, there may be other factors involved in this decision-making process, though, that are not necessarily based on a rational thought process (e.g., an attractive and friendly female cashier may be able to persuade a young adolescent male to purchase a discount card even if he never intends to use it), but it is reasonable to suggest that most consumers will be far more likely to adopt a pragmatic approach to this type of cost-benefit analysis. In other cases, consumers may expect gasoline prices to remain sufficiently low or even drop lower in the foreseeable future to the extent that they do not need to invest in a discount card by spending more than they planned at the supermarket. In addition,…
